10 out of 13 recent QIPs trading in the red
Business Standard, Money & Markets, July 15, 2009, Page 1
BS Reporter / Mumbai
Companies may fail to raise the projected Rs 40,000 crore.
The pace of qualified institutional placements (QIPs) since the beginning of this financial year has started to run out of steam.
While projections put the amount being raised through this instrument at as high as Rs 40,000 crore, most placements completed in the last few months are trading in red.
A study by Crisil Equities reveals that most QIPs in 2009 have given negative returns with 10 out of 13 placements during the period trading below the offer price. As on July 10, average returns from these QIPs were marginally negative. This is despite 75 per cent returns from the first QIP by Unitech. Excluding Unitech, the average are a negative 12 per cent.
Around one-fourth QIPs are trading 20 per cent below their offer price. In percentage terms, Bajaj Hindustan’s QIP has declined the most. Its current market price is around 28 per cent below the offer price. In absolute terms, Unitech (the second tranche sold at Rs 81) and HDIL have lost the most (more than Rs 450 and 350 crore, respectively).
Now, the Rs 40,000 crore projected to be raised via QIPs seems far off with some companies reducing the amount to be raised. Some have even scrapped their QIP plans.
The total amount raised through QIPs was Rs 12,500 crore. Unitech, through its two QIPs (in April and June), raised around Rs 4400 crore, or 35 per cent of the total. The Rs 50 crore QIP of Power Trading Corporation was the smallest. Among sectors, five real estate companies raised close to Rs 9,500 crore, or 76 per cent of the total.
There are over 30 other companies that have got shareholders’ nod for QIPs. These are Pantaloon Retail, JSW Steel, IndusInd Bank and S Kumars. Educomp raised Rs 607 crore via private placement last Thursday.
In the last two weeks, the markets have been volatile with a downward bias. Market experts said this could lead to a further fall in interest in QIPs. This is because under the Securities and Exchange Board of India's guidelines, the price at which the placement is done is the average of the last 15 days’ stock price of the company.
GMR Infrastructure was forced to call off its Rs 2,447 crore QIP on Monday after investors developed cold feet on concerns over valuation. Similarly, construction firm HCC had a mandate to raise Rs 1,500 crore but could raise only Rs 480 crore. Real estate firm Sobha Developers could raise only Rs 543 crore as against the target of Rs 1,468 crore, while GVK Power, say sources, has managed to raise Rs 611-734 crore as against a target of Rs 2,447 crore.
Chetan Majithia, head, Crisil Equities, said, “The significant run-up in stock prices before the 2009-10 Budget made QIP deals unattractive as fundamentals of most companies which queued up for these issues had not changed materially. With concerns over global economic growth persisting and delay in monsoon, the S&P CNX NIFTY is trading 15 times its FY10 expected earnings, which is rather expensive. With recent decline in prices and consequent erosion of the QIP investment value, we expect raising of capital through the QIP route to slow down significantly.”
Wednesday, July 15, 2009
10 out of 13 recent QIPs trading in the red
WB sees remittances to developing nations fall to $304 billion in 2009
WB sees remittances to developing nations fall to $304 billion in 2009
The Financial Express, July 15, 2009, Page 13
fe Bureau, Chennai
Remittance flows to developing countries are expected to be $304 billion in 2009, down from an estimated $328 billion in 2008, the World Bank has said, releasing a new migration and remittances brief to coincide with an international diaspora and development conference.
The predicted decline in remittances by -7.3% this year is far smaller than that for private flows to developing countries. According to the World Bank, remittances are relatively resilient because while new migration flows have declined, the number of migrants living overseas has been relatively unaffected by the crisis.
However, sources of risk to the outlook include uncertainty about the depth and duration of the current crisis, unpredictable movements in exchange rates, and the possibility that immigration controls may be tightened further in major destination countries.
“There is a risk that rising unemployment will trigger further immigration restrictions in major destination countries. Such restrictions would curb remittances more than forecast and would slow the global recovery in the same way as protectionism against trade would endanger a global upturn,” explained World Bank's development prospects group director Hans Timmer.
Remittances have slowed in many corridors since the last quarter of 2008. In line with a recent downward revision in the World Bank's forecast of global economic growth, the new update (2009-2011) highlights the impact of the present financial crisis on the remittance flows and describes broad regional and country specific trends.
Remittance flows to Latin America have been falling in large part because of a slowdown in the US construction sector. The new forecasts show a -6.9% decline in remittances for the Latin America and Caribbean region. Sub-Saharan Africa is also likely to experience a -8.3% slowdown in its remittance flows.
However, flows to South Asia and East Asia have been strong; but remittances are expected to decline somewhat in 2009.
India, China and Mexico retain their position as the top recipients of migrant remittances among developing countries.
Smaller economies such as Tajikistan, Moldova, Tonga, Lesotho, and Guyana are the top recipients in terms of the share of remittances in GDP; which exceeded a quarter of their GDP.
“Remittances provide a lifeline to many poor countries. Although they remain resilient, even a small decline of 7% or 10% can pose significant hardships to the people and to governments, especially those facing external financing gaps. Reducing remittance fees and developing innovative tools to leverage remittances for financial inclusion and capital market access should be a part of our response to the financial crisis,” said World Bank development prospects group lead economist Dilip Ratha.
Permanent housing for slumdwellers in offing
Permanent housing for slumdwellers in offing
The Financial Express, July 15, 2009, Page 2
Kakoly Chatterjee, New Delhi
The city’s slumdwellers could get permanent housing under a new scheme, the Rajiv Awas Yojana (RAY), announced by finance minister Pranab Mukherjee in Budget 2009-10.
Though the fine prints of the new scheme are still being worked out by the housing ministry, officials said each dwelling unit under the scheme would be of the size of 25 sq mt and expected to cost around Rs 2,00,000 to Rs 2,50,000. The cost of the dwelling units would be shared by the central and state government alongwith the occupant.
While central government assistance will be in the range of 50% to 90% depending on which part of the country the project is located, the remaining would be shared by the state governments and the occupants.
According to Kaustav Basu, principal consultant, PA Consulting Group, “There should be a lock-in period of five to six years before the occupants can sell the property to discourage the trade in these dwelling units”.
Housing and poverty alleviation minister, Kumari Selja said that RAY is not only going to deal with existing issues but also future issues relating to the grwoth of slums in the cities.
“Inclusive growth is not possible until we have inclusive cities for which inclusive zoning is required. Existing planning model which is exclusionary needs to be modified with inclusive planning,” Selja said.
According to housing ministry, the concept paper for RAY is ready and has been sent to state chief ministers. By mid-July Kumari Selja is expected to confer with technical advisors and members of Jawaharlal Nehru National Urban Renewal Mission (JNNURM), eminent NGOs, industry associations to finalise on the fineprints of the scheme.
The main highlight of RAY is that the scheme would focus on according property rights to slum dwellers. The legal framework is being worked for this. An extensive slum survey to find out the number of families and where they are dwelling needs to be completed before RAY is implemented.
Housing ministry has received a 50% hike in funds to Rs 3,765 crore for funding the two JNNURM schemes that the ministry runs. For basic services to the urban poor (BSUP) housing ministry has received Rs 2,505 crore. Funds allocated for integrated housing and slum development programme (IHSDP) is Rs 1,110 crore and a token amount of Rs 150 crore has been allocated for RAY.
FIIs cut premiums for Indian stock markets
FIIs cut premiums for Indian stock markets
Business Standard, Money & Markets, July 15, 2009, Page 1
Palak Shah / Mumbai
After investing around $8 billion between mid-March and mid-June, foreign institutional investors (FIIs) have started cutting down premiums for the Indian stock markets.
Market experts said the premiums were down from around 15 per cent before the Union Budget last week to 5-7 per cent at present.
“All major FIIs have cut their premiums to the Indian markets. Consequently, the premiums are justified and realistic now,” said Pramod Gubbi, director, Nobel, a research house that advises several FIIs.
Long-only FIIs allocate funds for each market, which entails a certain premium, based on growth projections for the year.
Prior to the Budget last week, the markets in India were getting a premium of 15-20 per cent as there were expectations of a clear road map for divestment of public sector units and de-regulation of oil prices.
However, the premium slipped due to lack of a clear message from the government regarding these reforms in the Budget. The rise in the Centre’s fiscal deficit to 6.8 per cent of the gross domestic product is another reason for concern. Also, the government announced record borrowings of Rs 4.51 lakh crore in the Union Budget. Analysts fear that such a huge borrowing programme will lead to hardening of interest rates. This, in turn, could crowd out the private sector’s borrowing and hit balance sheets of companies by raising their cost of borrowing.
However, experts said the premiums could rise again if the reforms agenda continued after the Budget. Rashesh Shah, chairman, Edelweiss Securities, said foreign investors were still willing to pay a premium for the Indian markets on hope that the government would push reforms.
“Even though this will be a short fiscal year after the Budget, it is likely that FIIs could bring in over $10 billion if a clear road map for reforms is worked out. In that case, premiums could rise above 10 percent,” added Shah.
In the absence of any major FII action, Shah said the markets could consolidate and stay within a range for a month or two before the next rally.
The Indian markets have risen the fastest in the last few months. Since March, the S&P Nifty has risen 55 per cent. Other emerging markets, including Brazil, Russia and China, gained between 34 per cent and 48 per cent.
Low-rise independent floors gaining favour
Low-rise independent floors gaining favour
The Economic Times, July 15, 2009, Page 5
Sanjeev Choudhary NEW DELHI
REAL estate developers in the national capital region (NCR), struggling to beat a slump in demand, are banking on low-rise independent floors to induce customers into buying homes. The developers are able to offer these homes at much lower prices, almost 30% lower, compared with a typical multi-storey apartment. Significantly lower maintenance cost for these homes is also attracting many buyers.
Realty companies such as BPTP, Emaar MGF and Ansal API have together sold close to 7,000 homes in NCR in the past three months, according to the executives of these companies. A BPTP spokesman said the company sold more than 5,500 low-rise independent floors in a Faridabad project in May. An Emaar MGF spokesperson said the company sold a thousand homes in this segment in Gurgaon last month.
“Many people, especially in North India, still prefer low-rise and independent floors. They are not very comfortable using lift and feel safer in low-rise homes,” says Kunal Banerjee, executive director, TDI, a realty firm that will launch 400 such homes next week in Kundli in NCR. TDI is offering homes between Rs 17.5 lakh (for 810 sq.ft) and Rs 26.5 lakh (for 1100 sq.ft).
BPTP’s vice-president (marketing) Amit Raj Jain attributed the success of its project to right pricing. “The cost of construction and maintenance comes down drastically in case of independent floors as many of the infrastructure needs such as lifts and security to be provided in case of high rise are not mandatory in the case of low rise,” he said. BPTP’s 3bhk home cost Rs 16 lakh and a 4bhk cost Rs 25.5 lakh.
Ansal API CEO Anil Kumar estimates the cost of construction for an independent floor house to be around 25% lower than multi-storey homes. “Besides lower cost of construction, these houses also attract significantly lower charges on account of government licence fee making them cheaper,” Mr Kumar said. His company sold close to 150 homes in Panipat and is planning to launch independent floors in Kurushetra, Karnal and Dadri.
Another significant factor that attracts buyers to these homes is the low maintenance charge. A home owner may end up paying Rs 1800 to Rs 2400 on account of maintenance charge for a 1200-sqft multi-storey apartment, but he shells out very little when he manages the maintenance for independent floor as it doesn’t involve maintenance of park, lift, club and security. Also, a home buyer saves around Rs 3 lakh, as there is no common power back-up, parking charges or club membership.
Areas such as Ghaziabad and Noida in NCR had seen many small developers develop these three-floor homes as the local laws permitted this, but large developers launched these independent floors only last year in Gurgaon and Faridabad after Haryana government allowed registration of independent floors.
Panel moots institute of professional valuers
Panel moots institute of professional valuers
Business Standard, July 15, 2009, Page 6
BS Reporter / New Delhi
The expert group, constituted by the government to examine the draft legislative proposal for regulation of valuation professionals, has recommended setting up an institute of valuation professionals, which would be an autonomous and corporate professional body.
This, the group, said would recognise valuation as a separate discipline and be pursued as a well-organised profession.
“Unlike chartered accountants, cost accountants and other disciplines, there’s no discipline for valuation professionals and hence expert group suggested creating a discipline, which would have a quality review mechanism by setting up an institute and making it statutory,” said Amit Mitra, chairman of the expert group and secretary general of industry body Federation of Indian Chambers of Commerce and Industry (Ficci).
The proposed institute would not only function as a regulatory and technical body but would also play a promotional and facilitation role to ensure “high quality” education and examination system for the valuation profession.
The Companies Bill, 2009, which is expected to be tabled in the current session of Parliament, provides for a framework to enable fair valuations in companies and, hence, it calls for having professional valuers.
At present, corporate valuation is done by auditors, merchant bankers, company secretaries or chartered accountants for initial public offerings, mergers and amalgamations, strategic alliances and corporate restructuring.
The proposed institute would be governed by a council of valuation professionals, as recommended the expert group.
DLF, Prudential to invest Rs 200 cr in insurance JV
DLF, Prudential to invest Rs 200 cr in insurance JV
The Economic Times, July 15, 2009, Page 10
Paramita Chatterjee NEW DELHI
REAL estate firm DLF and its US partner Prudential Financial are looking to infuse Rs 150-200 crore to boost the operation of their Indian life insurance joint venture DLF Pramerica, a senior executive of the JV company told ET.
Of the total capital proposed to be infused, DLF would contribute 74%, while the remaining would come from its foreign partner. Two-yearold DLF Pramerica, a 74:26 JV between DLF and Prudential Financial, currently has a capital base of Rs 130 crore.
The JV firm plans to foray into tier II and tier III cities in the country and recruit around 1,500 agents besides 50-100 managers by the end of this fiscal. DLF Pramerica at present has around 600 employees and 450 agents.
“Insurance is a capital intensive sector and has huge fund requirements. India has immense potential as the life insurance penetration here is still very low when compared to other countries. We are looking at investing further to increase our presence,” said Prudential Financial senior vice-president and co-president, international insurance business, Timothy Feige.
Prudential Financial has said that it will increase its stake in the JV to 49% as soon as the government raises the foreign direct investment(FDI) ceiling in the sector. Currently, FDI in the insurance space is capped at 26%. “We are waiting for the Insurance Bill to be passed by the government. Once the regulatory hurdles are cleared, we will increase our holding,” said Mr Feige.
A small player in the insurance industry, DLF Pramerica has offices in Haryana, Punjab and the National Capital Region and wants to ramp up its presence in the northern region before foraying into south India.
DLF cutting debt @Rs600 cr/mth
HT Business, July 15, 2009, Page 1
Real estate giant DLF Limited, stuck with a combination of property inventories and high debt, is reducing its debt by Rs 600 crore to Rs 1,000 crore every month.
DLF shares rose by 11.44 per cent on the Bombay Stock Exchange on Tuesday to close at Rs. 300.10.
“We are reducing our debt by Rs 600-Rs 1,000 crore every month as a part of our ongoing effort to halve it by the end of the fiscal,” Rajeev Talwar, DLF’s group executive director told reporters on Tuesday on the sidelines of an event organised by the Confederation of Indian Industry. “Some of it is through the funds raised from sale of land parcels and rest through our own cash.”
The country’s largest real estate developer has a long-term debt of Rs 13,958 crore and plans to halve it by the end of March 31, 2010.
Talwar said that the company had so far raised Rs 1,000 crore through sale of land plots and will raise another Rs 1,900 crore by the end of the financial year.
The company has 40 hotel plots across the country of which 19 are under construction while the remainder have been put up for sale.
Earlier this year, DLF, in an investor presentation stated it plans to raise Rs 5,500 crore through a combined sale of non-core assets like its wind and power business and land parcels earlier slotted for development of properties like hotels.
The rates of the housing units are down by 20-25 per cent than what prevailed in the country in 2007, Talwar said.
Tuesday, July 14, 2009
Banks see rates rising 100 bps in second half
Business Standard, July 14, 2009, Page 1
BS Reporter / Kolkata
A day after Union Finance Minister Pranab Mukherjee said the government’s huge borrowing programme would not push up interest rates, bankers remain unconvinced.
Government-owned State Bank of India, the country's largest lender, sees interest rates rising by up to 100 basis points in six months if cash conditions tighten. It has company in UCO Bank, which foresees a rise of as much as 150 basis points in its prime lending rate (PLR), IDBI Bank, and others.
Banks are flush with cash but anticipate pressure after the government last week announced record borrowings of Rs 4.51 lakh crore for the current financial year, about Rs 89,000 crore more than what was forecast in February’s Interim Budget. The Reserve Bank of India and the finance ministry are scheduled to meet in New Delhi on Friday to draw up a calendar and the modalities for this borrowing.
“Last fiscal, RBI was prudent in debt management and this year also we will ensure that the private sector can get loan at affordable rates and not pay higher interest,” Mukherjee said on Sunday.
Last month, SBI reduced its benchmark PLR by 50 basis points to 11.75 per cent. Commercial bank lending rates have fallen 200 basis points since last October, after the central bank slashed its main lending rate by 425 basis points to revive a slowing economy. Bank loan growth slowed to 15 per cent in June from 30 per cent in 2007-08, but is expected to pick up in the coming months as economic activity revives.
“There is a possibility of interest rates going up by 25 to 100 basis points if liquidity is not managed well when the busy season picks up," SBI Chairman O P Bhatt said on the sidelines of a banking conclave in Kolkata. “Inflation is going up, government borrowing will increase and liquidity in the system will come down.”
He does not see much scope for reduction in rates, as the bank’s net interest margin has come down from 3.16 per cent in December 2008 to 2.32 per cent. “We would like to maintain 2.50-3.00 per cent by the end of this financial year,” he said.
Echoing Bhatt, UCO Bank Chairman & Managing Director S K Goel said if government borrowing and higher credit demand squeezed liquidity, interest rates could rise to 14 per cent in the third quarter. The bank’s current PLR is 12.5 per cent.
Goel’s counterpart in IDBI Bank, Yogesh Agarwal, said recently that interest rates had softened in the past few months, but that would change. “The situation is now going to turn. When corporate demand picks up in the third quarter, one should be ready for higher interest rates.”
Allahabad Bank CMD K R Kamath said he expected RBI to ensure ample liquidity and the government borrowing to happen in a non-disruptive manner. “If these two do not happen, interest rates might go up,” he said.
United Bank of India CMD S C Gupta said, if liquidity was not managed prudently, interest rates might go up in the fourth quarter when credit demand was expected to pick up.
Bank of India Chief Financial Officer V K R Agarwal agreed. “With deficient rainfall, the risk of rise in the consumer price index is real. When CPI (consumer price index) moves up (due to energy and food prices), consumers (depositors) may expect banks to protect their returns on deposits. In such circumstances, banks may have to increase deposit rates.”
RBI was prudent in debt management last fiscal, too. This year also, we will ensure that the private sector gets loan at affordable rates and does not pay higher interest rate Pranab Mukherjee Finance Minister
There is a possibility of interest rates going up by 25 to 100 basis points if liquidity is not managed well when the busy season picks up O P Bhatt SBI Chairman
If govt borrowing and higher credit demand squeezes liquidity, interest rates could rise to 14% (current PLR 12.5%) in the third quarter S K Goel CMD, UCO Bank
The situation is now going to turn. When corporate demand picks up in the third quarter, one should be ready for higher interest rates Yogesh Agarwal,CMD, IDBI Bank
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