Author
Given the general despondency in the power sector in India over the past couple of years and the multiple attempts by Jaiprakash Associates to raise money, the Rs 950-crore qualified institutional placement (QIP) of shares by its subsidiary, Jaiprakash Power Ventures, was no mean feat. Facilitated by Credit Suisse, the QIP, a sub-category under the head ‘institutional equity placement’, is the largest in the power sector in four years. It opened on 19 February 2013 and closed on 22 February, with a minimum impact on the company’s scrip. Suren Jain, MD and CFO, says the company chose the QIP route over a public issue or any other mode of raising funds, due to the interest shown by institutions and also because a public issue is a long-drawn process and tends to impact the stock. According to Jain, the money raised from the QIP was used as equity in the Nigrie thermal power project (2 x 660 MW) in Madhya Pradesh and the Bara thermal project (3 x 660 MW) in Uttar Pradesh. Jain believes the deal reinforces faith in the power sector and demonstrates that “companies that deliver can raise money even in difficult times”. While admitting that fuel security and policy limbo issues were impacting Jaiprakash Power’s project execution capabilities, Jain expressed confidence that the company would grow exponentially, given that the country remains power deficient. Prior to the QIP, Jaiprakash Power had raised funds in 2010 and 2011, using a mix of options — offer for sale, convertible bonds and an initial public offer. This time around, before settling on Credit Suisse, the power company was in talks with a number of banks. Fund estimates promised by most banks ranged between $100 and $135 million. Once the Swiss financiers were brought in, they chose to go to the market with a larger deal size, using it as a form of assurance to investors that Jaiprakash Power would not return to the market anytime soon to either liquidate assets or raise more money. Jaiprakash Power’s QIP fared better than its peers in the power sector largely on account of its existing hydropower capacity — 1,800 MW at the time, says Credit Suisse. Another point working in its favour were the captive mines for its Madhya Pradesh project. Credit Suisse turned the three main challenges of the power sector — fuel security, long gestation period and the funding gap/strained cash flow — to Jaiprakash Power’s advantage. “These (challenges) were our main focus areas when working out the QIP,” explains Sumit Jalan, head of the Indian equity capital market business at Credit Suisse. The company’s hydropower projects and captive mines helped the bank increase the deal size and set investors’ doubts at rest. On recent reports of Jaiprakash Power selling two hydropower plants in Himachal Pradesh, Jain, while rubbishing them, says the company is in the process of creating assets.(This story was published in BW | Businessworld Issue Dated 24-03-2014)
Read More
Reserve Bank of India (RBI) Governor Raghuram Rajan has expressed optimism on India's growth rate going beyond the 5 per cent mark soon. "The economy has been growing at a flat rate of 5 per cent and hopefully we will see it picking up in the near future," he told PTI on the sidelines of a special talk at Oxford University on 5 May. Rajan also reiterated his view on the growth rate being inextricably linked with curbing inflation. "I have always stressed that stimulating growth and controlling inflation are not opposed to each other. Inflation is what is standing in the way of India's growth," he added. Rajan was addressing student members of the Oxford Union Society (OUS) on his way to Switzerland, where he has meetings planned with the Bank for International Settlements (BIS) on May 11 and 12. He stressed that his comments to the students were off the record and would not address any political issues as things will be clear only on May 16, when the general election results are announced. Rajan also expressed confidence that whichever government takes over, will lay a clear path to revive growth as he answered a series of questions on the state of the Indian economy from students. The senior economist joined a league of distinguished speakers at the OUS, which has hosted Queen Elizabeth II, the Dalai Lama and Mother Teresa in the past. (PTI)
Read More
The rupee is trading at 60.14/15 after gaining as high as 60.05 in opening deals but still stronger than its close of 60.21/22.Traders, however, say good dollar demand from importers, particularly oil firms, being seen pulling the rupee off highs.The dollar was subdued in Asia, holding largely around where it began this week after an aimless session overnight with holidays in Japan and Britain crimping activity in markets.All Asian currencies stronger versus the dollar.Traders expect the rupee to hold in a 59.90 to 60.30 range during the session with domestic shares being watched for cues on foreign fund flows.(Reuters)
Read More
Hot on the heels of a stiff opposition from allies, the government on Monday (5 May) decided to drop its move to name a judge to head the Commission set up to probe the snooping of a young woman by Gujarat police allegedly at the instance of Chief Minister Narendra Modi. "We have left the decision on appointing a judge to the next government," government sources said a day after two UPA constituents NCP and National Conference openly opposed the move in the "dying days" of UPA-II. A controversy had broken out last week when senior ministers--Kapil Sibal (Law) and Sushilkumar Shinde (Home)-- told the media that a judge would be named into the surveillance, which was dubbed as 'snoopgate', before May 16 when the counting of votes in the Lok Sabha elections will be taken up. The announcement came under severe attack from the BJP which slammed the UPA saying it was practising vendetta out of desperation of defeat in the elections. BJP questioned the move now saying the original decision of the Cabinet was taken in December and they could not decide on a judge all these days. The party also questioned the need for such a probe when the state government itself had ordered a commission of inquiry into the same subject. However, what apparently took the government by surprise was the opposition from its allies. Yesterday, NCP leader Praful Patel had said: "When the results of the Lok Sabha elections are due in two weeks' time, where is the need for such an enquiry." Significantly, NCP chief Sharad Pawar had talked to Prime Minister Manmohan Singh yesterday to convey the party's view in the matter. NCP is the second largest constituent of the Congress-led UPA. Striking a similar note, National Conference leader and Jammu and Kashmir Chief Minister Omar Abdullah said if the decision to appoint a judge could not be taken in December, then it was wrong to appoint a judge five months later. "Was talking to my dad last night and he felt the same way-setting up a commission of inquiry in the dying hours of UPA 2 is just wrong. "If the decision to appoint a commission was taken in Dec it should have been implemented. To appoint a judge 5 months later is wrong," Omar tweeted. It was alleged that illegal surveillance was carried out on a young woman architect in Gujarat in 2009 at the behest of Modi and Amit Shah, who was the Home Minister at that time. Unfazed by the opposition from its two allies, Congress spokesperson and Mahila Congress chief Shoba Oza had said there was "no compromise" on going ahead with the probe as the matter does not involve any political party, but women of the country who constitute half of the population. (Agencies)
Read More
Late on Monday (03 March), India notified an incentive of 3,300 rupees per tonne for production of raw sugar for exports as the world's second biggest producer of the sweetener tries to bring down its stockpile by promoting exports. A cabinet committee on economic affairs last month approved the proposal and mills had been awaiting the notification. Indian mills traditionally produce white sugar, but a global glut has made exports difficult. Exports of raw sugar will eat into the share of top suppliers Brazil and Thailand. The government will provide incentive for export of 4 million tonnes of raw sugar produced in the 2013/14 and 2014/15 sugar marketing years, that run from October to September, the notification said. The incentive of 3,300 rupees will be applicable for exports in February and March. From April onwards, the incentive will be recalculated after every two months depending on the rupee-dollar exchange rate, it said. Mills need to pay incentives to make cane payments to farmers, it added. (Reuters)
Read More
The rupee is trading at 60.04/05 versus its close of 60.16/17 on Friday (May). The unit rose as high as 60.03, its strongest since April 10.All Asian currencies stronger versus the dollar. The index of the dollar against six major currencies currently down 0.06 per cent.The dollar got off to a cautious start on Monday, having staged a curious reversal late last week that saw it erase all of the gains sparked by a strong payrolls report.Traders expect the spot market to hold in a 59.90 to 60.25 range initially and watch local shares for further cues.(Reuters)
Read More
Onno Ruhl, country director, World Bank, speaks to Anjuli Bhargava about how India needs to get its infrastructure act together and not abandon public-private partnershipsWhat would be a good way for India to finance its massive infrastructure needs?The ideal way for India to finance its infrastructure is in any way imaginable. No single source is large enough. If you look at the sources, the first source has to be public finance — the government’s own books, financial institutions and a bit from foreign institutions. It makes sense to focus first on maintenance of infrastructure. There is a lot of infrastructure out there and you can get a lot out of it by maintaining it better. It could be very dangerous to say build new roads but not maintain the roads that are already out there. This is a very costly mistake many governments make because in the end they have to rebuild what they already had. There is no higher return on infrastructure than maintaining what already exists.Actually, that’s not true. Management of infrastructure may be even more crucial. With regard to new investment, the government needs to prioritise investment to areas where the private sector is unlikely to go. Also, as you go towards the trillion-dollar range, it’s quite important for the government to spend whatever money it raises judiciously since what it borrows crowds out private sector borrowings. So, it is important to first manage what you have better, then maintain and then only build.How successful has India been with the public-private partnership (PPP) model?India has been quite successful with PPPs, especially in terms of the volume of money it has managed to attract. It now has a lot of PPPs based not on the underlying projects but the balance sheet of the corporates and the willingness of the banks to finance the corporates. The problem is that the model is limited by the size of the balance sheet of the corporate and how much exposure the banks can have to the same corporate. That limit was reached just when growth was slowing down.The logical next step is to identify which asset classes are more amenable to this kind of financing and then be much more aggressive in creating financing for it. The balance sheet of the corporate has no further leverage. But there is leverage in projects that are really well structured; people will finance them. Then, how well the project is designed and how well risks are assessed become critical. There is a lot more scope in this but it will be in projects which have more revenues. Projects like airports, captive roads, bridges, and so on. There is no denying that PPP in airports has given India far better facilities, but many feel that it was at too high a price...It is possible that some of these airports are somewhat over-dimensioned. In Delhi, for instance, Terminal 1 does not look over-dimensioned but Terminal 3 does. In some other country, they may have built one wing and then another wing and, in that way, kept costs down. That would not be a bad idea. Government officials will say that if they build small, they will be accused of being myopic...We at the World Bank are, in fact, guilty of advocating under-dimensioning as we are so hung up on the economic rate of return. Sometimes we don’t see how dynamic the market can be. In urban areas, right-sizing is difficult as the growth is so fast — it is difficult to imagine under-dimensioning anything. The Indian roads sector is also going through a lot of pain. People are talking of abandoning PPPs in roads altogether. What is your view?Partly, it is the same problem of banks lending based on corporate balance sheets, which can only be leveraged to an extent. Then, in some cases, there were optimistic assumptions about traffic forecasts. So, bidding did become quite aggressive. Also, many construction companies became bidders and it was the construction that they were really after. So, it is a mix of things. I don’t think that justifies abandoning PPPs for roads. India should just learn from it and see which ones work and which ones don’t and based on that, structure projects differently.Hardly any project has worked. Everyone is looking to restructure, renegotiate or get out of PPPs...Globally, close to half the PPPs that are contracted are renegotiated at some stage. It is just exceptionally difficult to figure out revenues and returns for the next 30 years.Renegotiation in India is frowned upon. Since you are re-opening a deal, you could be accused of corruption. It is very tricky. The best solution will be a form of arbitration that is fast and which both sides will actually stick to. The government of India, in fact, has a track record of not sticking to arbitration and then going to the courts, which is not helpful. This requires a change in attitude. It has to become a more business-like relationship. (This story was published in BW | Businessworld Issue Dated 24-03-2014)
Read More
17 people were killed and 120 injured when the engine and four bogies of a passenger train derailed on Konkan Railway route in Maharashtra's Raigad district on Sunday (4 May).The accident occurred just outside a tunnel near Nidi village when the engine and four out of the 20 bogies of Diwa-Sawantwadi passenger train derailed at around 10 AM between Nagothane and Roha railway stations, about 120 kms from Mumbai.According to Raigad police control room, 17 passengers were killed and around 120 injured in the mishap which occurred in a remote area. However, a Railway spokesman in New Delhi put the number of those killed at 13.The death toll rose as more bodies and injured persons were found trapped when the overturned bogies were being removed, a police official said.Rescue operations were underway, police said.Eleven bodies were sent to Nagothane primary health centre for postmortem, while six were taken to government hospital at Roha, the police control room said.Of the injured passengers, a majority were being treated at Roha government hospital and the rest at Nagothane primary health centre, it said.Following the mishap, services on Konkan Railway route were suspended. According to railway authorities, some trains were diverted via Panvel-Lonavala-Pune-Miraj-Londa-Madgaon and a few cancelled.A goods train had derailed last month on the route, affecting services. The Railways ordered an inquiry and Railway Minister Mallikarjun Kharge announced an ex-gratia of Rs two lakh for the next of the kin those killed in the accident, Rs 50,000 for the grievously hurt and Rs 10,000 for passengers who suffered minor injuries.Railway Board Chairman Arunendra Kumar said Commissioner, Railway Safety, Chetan Bakshi will conduct the inquiry and has rushed to the site.The Chairman, along with Advisor, Health, B B Agarawal, is also visiting the accident site.The Railways also started two helpline-- Thane -- 022-25334840 and Panwel--022-27468. The helpline numbers on which passengers can contact Konkan Railway are 02352-228176 / 228951 / 228954, and 022-27561721/3/4.For the convenience of passengers, Konkan Railway has arranged for state transport buses from Konkan region to be diverted via various Konkan Railway stations on the way to Mumbai.Those passengers who have a valid train ticket for the cancelled/ diverted/short terminated trains, can travel by these buses towards Mumbai. Passengers are not required to pay anything for the bus journey, railway authorities said.Refund is being paid by Konkan Railway at its various stations for those passengers who would like to cancel their journey, they said.The location of the accident site has made it difficult to carry out the rescue work and to restore the traffic swiftly.The spot where the bogeys derailed is near a tunnel, with a hill slope on one side.Meanwhile, Maharashtra Home Minister R R Patil and the district guardian minister Sunil Tatkare visited the accident site this evening. (Agencies)
Read More
Subir Gokarn, former deputy governor of the Reserve Bank of India (RBI), in a conversation with Anjuli Bhargava, calls for the phasing out of SLR to free up public sector banks’ funds What would you like the next government’s priorities on banking and financial sector reforms to be?The issues dogging the sector relate to access, stability and efficiency. It’s clear that the banking system, despite being dominated by the public sector for the past 45 years, has not been able to fulfil the social mandate of providing as many people as possible access to it. Why do you think it has not happened?There is a disconnect between the structure of banks — the targets that were set, the incentives they were given and the way the targets were pursued — and what people, especially in rural areas, need from banks. I used to go on outreach programmes to villages when I was with RBI. There I realised that banks did not have a cost-effective solution to providing the products they wanted. The last-mile delivery process needs to be built with an entirely different cost structure than what the banking system offers. We’ve tried business correspondents and Grameen banks. These did not really work, but we did have partial success. We need to find the right mode of delivery and the right product.On the stability part, the issue is asset quality. If we are looking at any kind of recovery, we are going to be bogged down with asset problems on the banks’ side and with leverage problems on the corporate side. Company balance sheets are heavily leveraged and banks have a large number of non-performing assets (NPA). There has to be some explicit strategy to deal with these; a time frame to either revive or write off these assets. What kind of urgency is there at the government or central bank level in dealing with this problem?The numbers are significant warning signs of NPAs and restructured assets. There is, of course, an opportunity for restructured assets to be revived.The third issue facing the banking sector is inefficiency. I see a huge opportunity here. The public sector banks (PSB) will see their workforce shrink over the next five years. A large number of employees are retiring. The number of people available to do certain jobs — at the middle and senior management levels — is going to be far less. So, there is a huge opportunity to bring in technology in a massive way to totally restructure their operations and change the way they work. Information technology (IT) has taken banks to a level where they can reduce their workforce quite dramatically. Of course, this will require significant political will and backing. A lot of Indian PSBs have not really imbibed or adopted technology…Yes, and it is a vicious circle. You cannot bring in technology because people are resisting it. But when you have less people, you may have to bring in new technology to run your operations without those people.The fourth issue is this whole problem of statutory liquidity ratio (SLR), an onerous requirement for banks. To meet the SLR requirements, they have to buy government securities. There is, however, no incentive to trade in government securities. But if banks don’t start trading in government securities, the markets will never do it because the banks are the largest holders. For this, SLR may even need to be eliminated over time.Is there any unanimity on this?The governor talked about ending pre-emptions in his inaugural speech. The Urjit Patel Committee report also talks about doing away with SLR in a phased manner. If you do it too quickly, there will be a dent in the balance sheets of banks. Are you in favour of new private banks? What impact will their entry have on the system?I am always in favour of fresh entrants. It’s important to allow the private sector to explore new ways of banking and reach newer segments. However, along with licences, there has to be a significant revamp in supervision.But considering the trust deficit…The supervisor has to be able to ensure credibility. RBI’s capacity to supervise has to be notched up. In the 1990s, when corporates looked for banking licences, they were told they could take up other financial businesses, not banking. Some of the largest NBFCs today were set up by corporate entities. They have done well; they have shown growth, profitability and good asset quality. So, you can’t tell them that while you have a successful track record of managing a financial business for the past 20 years, we cannot trust you with banking. I do not think it’s fair. They have proved their capability to run financial businesses.Let’s talk about the NPA problem. What can be done to avoid it?Strengthen due diligence and make sure banks take decisions based on business considerations only and not extraneous reasons. The current problem is the culmination of several factors; while some are one-off and will fade over time, others are more serious. Among the one-offs is the restructuring opportunity provided in 2008 during the crisis. A lot of fundamentally bad businesses were given the benefit of doubt. The asset quality problem was pushed back, and it is now coming home to roost. How does one make the loan sanctioning authority more accountable? Also, how does one insulate the process from political pressures?You need to appoint public sector chiefs more objectively. Someone from outside the system could help. If you are getting new people, don’t get them under the old contractual framework. All of this will only help; none of them is the solution. There has to be a change in culture and thinking at the government level. Banks are not captive sources of funds. They need to function independently. You can’t solve the banking problem unless you look at it structurally. (This story was published in BW | Businessworld Issue Dated 24-03-2014)
Read More
National Institute of Public Finance and Policy professor and former finance ministry advisor Ajay Shah tells Anjuli Bhargava that monetary policy needs to move away from the cult of personality Are we back to the Hindu rate of growth or can we still aspire for an 8-10 per cent growth rate?The Hindu rate of growth is 3.5 per cent. In the last 20 years, India’s trend growth rate has been around 7 per cent. There are business cycles — sometimes good (8-10 per cent), and sometimes bad (4-5 per cent). When things are good, we should not be over-optimistic, and see that as trend growth. Similarly, when things are bad, we should not be pessimistic; we should not extrapolate and say we have collapsed.Trend growth changes slowly in response to deeper micro-economic factors. The Hindu rate of growth is firmly out of the picture. We are in a trend growth range of 6.5-7 per cent.Have the last five years of UPA 2 been a factor in slower growth?The 2008 crisis had an impact. Then, the great corruption scandals made a big difference to the investment climate and the pace of investment. We are all disappointed at the opportunity cost as things did not get done. We cannot absolve UPA 2 on the last two counts.Where does growth come from and what do you think we will see in the years to come?If nothing changes, we will see trend growth of 6.5-7 per cent on average over the next 10 years.Growth comes from labour (quality of labour is going up), capital (we are at 30-35 per cent savings and investment rates) and productivity — firms are more inclined towards technology and improved business practices.How do we reverse stagnation in the manufacturing sector?Fix indirect taxation. Move towards Goods and Services Tax (GST). Make movement of goods outside and within India free. Remove customs duties. Implement GST on exports and imports. And, improve infrastructure.Indian manufacturing, all too often, is sub-scaled. Either we run too small an operation fearing labour laws or we overpay our workers and erode our competitiveness.I’d like to see fewer family businesses. A study by us shows family-run companies pay lower excise duties compared with the ones run by professionals. They (when the family owns 50-60 per cent) are more troublesome because the incentives are very powerful. So, if they can influence law and enforcement, the benefits that family members reap can be substantial. We should have more companies with dispersed holdings — professionally run — rather than family-run businesses.What would you like to see the government make its top priority?Corruption scandals, the incredible problems with tax policy and tax administration, the mess-ups on capital controls and the rupee crisis in the last few years have one common underlying factor that we need to face up to. How do we make the government work properly? That’s the secret sauce we need to figure out. I’d like to see them manage themselves better. Things have been run this way for the past 50-60 years. What makes you think that anything will change?We have always had a messy, clubby way of doing things. We have always given our coal mines to friends and have procured coal from them. In 2007-09, I was very upset with the way things were going in India. While the economy was doing well, we saw unsavoury elements starting private projects, co-opting the government, influencing regulators, but all that has changed now. Today, liberal democracy has begun to exert excruciating pressure, and there is a change.Look at the latest spectrum aucauctions. Are we doing business as usual? The government, the politicians, the bureaucrats as well as the private sector are all scared. Today, investors look for ethical entrepreneurs. It’s a sea change.To what extent have interest rate hikes dampened growth?While it is claimed that the Reserve Bank of India (RBI) hiked rates 13 times, the change in the rate was smaller than the change in inflation. Inflation was rising fast, but the rates did not rise at the same pace. So, the real rate was actually going down. If you look carefully, India injected a very big monetary stimulus during that period, and we had an inflation crisis. India’s inflation has been brewing for a while... Weren’t you in the finance ministry at the time? Was there no realisation of this then?That’s what brings me to the monetary policy framework. Rather than leaving it to tactical decisions and to personalities — for instance, during Y.V. Reddy’s time, it was believed that exchange rate management was important and inflation was not as important — we need to depend less on individuals; a formally laid down monetary policy that does not depend on individual thinking and actions is called for. It should not be what Raghuram Rajan is doing as governor. The Urjit Patel report is a good way to proceed on this.(This story was published in BW | Businessworld Issue Dated 24-03-2014)
Read More
