Malls have grown bigger over the years. And shopping’s just a small part of what they have to offerClick here to view graphic(This story was published in BW | Businessworld Issue Dated 06-05-2013)
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A plan for a less chaotic land acquisition system for roads and industry in India won broad agreement from main political parties on Thursday (18 April). The government announced that party representatives had settled their differences on a bill to set clearer rules for allowing land to be purchased for such development, and for compensation to landowners who lose their property.The proposed rules, which would replace laws dating back to the 19th century, would aim to speed up major projects and help a flagging economy, but businesses fret that they will raise costs and could actually slow down the acquisition process.At present, the government can forcibly purchase land for certain projects by citing public good, a system that has led to deadly protests by small landowners who complain they are not adequately compensated.Left-wing parties have said the proposed compensation for loss of livelihood under the reform plan is not generous enough."A broad consensus has been reached today at the all-party meeting on the land acquisition bill," parliamentary affairs minister Kamal Nath of from the ruling Congress party told reporters. He said the bill would be dealt with in the second half of a session of parliament that begins on 22 April.Opposition leader Sushma Swaraj of the Bharatiya Janata Party (BJP) said, without giving details, that the government had agreed to most of a dozen suggestions she had made to fine-tune the bill. The law could oblige developers to pay up to four times the market price for land in rural areas and twice the market price in urban areas, and give displaced people homes and jobs.In the most recent draft made public, the bill required up to four-fifths of all the landholders to agree to the sale to a company before any land can be acquired."The bill in its present form would have serious implications for economic growth in the country as it will impact our competitiveness", A. Didar Singh, secretary general of business chamber FICCI, said in a statement.Left-wing parties oppose the bill, but the Congress party and the BJP together should have enough votes to pass it.Some investors say that while the bill is likely to raise project costs, it will also bring policy clarity to the process of land acquisition.Market watchers say the bill, once passed, will likely boost the share price of companies like DLF Ltd, India's largest real estate developer, Sobha, Unitech and Prestige, which own large tracts of land.(Reuters)
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Today there are more road developers looking to get out of road projects than those wanting to get in,” says Abhijit Bhaumik, director at Delhi-based Opus Advisory. Not surprising when you consider that so many road projects are floundering for want of money. Projects to build nearly 4,500 km of roads are unlikely to get started because of cash constraints (see Road Not Travelled). The amount needed for these projects is Rs 40,000 crore and developers are finding it hard to raise the finances. The extent of the trouble the roads sector is grappling with has been brought into focus by a recent list compiled by the National Highways Authority of India (NHAI). That’s a remarkable deterioration in conditions since the time when infrastructure companies were queueing up and making outrageous bids to bag projects and the NHAI was looking at a rosy balance sheet for years to come. The first company to sound the alarm was GMR, which announced the termination of the Rs 5,400-crore Kishangarh-Udaipur-Ahmedabad highway project that it had bagged earlier. To go back a little, in September 2011, when GMR won the 555-km highway-widening project for an annual premium of Rs 636 crore, rival companies had groused that GMR had overbid and that the project economics did not make sense. The Bangalore-based group, however, was confident. But in December 2012, GMR — despite having achieved financial closure — served a notice on NHAI, announcing its intention to terminate the project. It said that it had been delayed for too long due to lack of clearances.But few are willing to buy GMR’s story especially since another big infrastructure company is citing almost exactly the same reasons for exiting another high-profile project. The project for four-laning of the 332-km Shivpuri-Dewas stretch in Madhya Pradesh was won by the Hyderabad-based GVK group for Rs 4,000 crore. Within weeks of GMR’s announcement of termination, GVK also served notice. Rivals say the problem was that the two companies had bid too aggressively. They point out that the second and third bidders had been far more conservative in their bids. That may be so, but there is no denying the fact that the business environment, too, has undergone a sea change. There are a dozen other developers who are trying to figure out how to achieve financial closure before they can start building roads. For the NHAI, this is a nightmare because putting these incomplete roads for rebidding would actually increase costs. “If we have to put these projects up for re-bidding, the cost will go up by another Rs 4,000-5,000 crore. Therefore, we are keen that companies financially close these projects at the earliest,” says a senior NHAI official, requesting anonymity. He adds that while some of these projects will achieve financial closure in the next few months, there is the distinct possibility that a few developers may walk out of the projects, and that NHAI may be forced to invite fresh bids for these stretches.Where’s The Money?One reason why companies cannot find funds is the reluctance of banks to lend. Banks have become wary after many infrastructure companies failed to service loans. Several companies have now asked banks to restructure their debt. Says a GMR spokesperson: “A number of banks are not keen to finance toll-based projects due to the risk perception in the current economic scenario. Moreover, some developers are finding it difficult to meet upfront equity requirements or are unable to raise equity.”But why were infrastructure companies unable to meet debt repayments? The biggest reason is that traffic projections were often unrealistic. An analysis by the National Highways Builders Federation shows that traffic fell short of estimates by over 20 per cent during January-December 2010. During May-August 2011, the shortfall was as high as 60 per cent. “Clearly, there has been lower growth due to a gap between what the bidders were counting on and what the actual traffic was,” says M. Murali, director general of the federation.Another view is that the traffic estimates of the aggressive bidders were optimistic to start with. This is evident from the difference between the highest and the No. 2 and 3 bids — at least in one of the projects, the winner had projected a traffic double that of the No. 2 bidder. Opus Advisory’s Bhaumik says that over Rs 3 lakh crore of debt has been restructured by banks, but even then there is a chance of a large portion of this debt turning into non-performing assets (NPA). This is a matter of concern since 18.5 per cent of bank lending to infrastructure is directed towards the roads sector.Some relief — both for banks and borrowing companies — came when the Reserve Bank of India (RBI) announced on 22 March that debts of infrastructure projects that were being implemented under the private-public partnership (PPP) model and had model concession agreements would now be treated as secured lending. This is expected to ease some of the banks’ concerns on NPAs and make lending to road companies more attractive, thus, giving infrastructure financing a much-needed boost. Old HabitsThe relief, however, will end up being temporary if infrastructure companies do not change the way they channelise their funds. According to industry experts, road and highway companies do what the real estate sector in India is famous for doing: diverting funds from one project to another, and then finding that they don’t have the finances to complete the first project. “How it works is that the company bags one project, sets up a special purpose vehicle for it, manages to get some debt funding and withdraws some of that money to use as equity component for another project. That’s why we fear that many of the projects that are under way may not be completed or at least not completed on time,” says a roads ministry official. If what he says is true, the government and the NHAI will be saddled with a host of incomplete projects, many of which may have to be put up for re-bidding at huge cost to the exchequer. The road ahead seems bumpier than usual. anjulibhargava(at)gmail(dot)com(This story was published in BW | Businessworld Issue Dated 06-05-2013)
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State-owned energy major ONGC on 18 Aril' 2013 became the country's most-valued company with market capitalisation of over Rs 2.86 lakh crore, surpassing Tata Group's software services company TCS. At the end of the day's trade, ONGC commanded a market value of Rs 2,86,223 crore, the highest for any listed company in India. This is about Rs 2,289 crore more than Tata Consultancy Services' market capitalisation of Rs 2,83,934 crore. Shares of ONGC ended 1.73% higher, while those of TCS dipped 0.58% at the end of day's trade. Reliance Industries with a market capitalisation of Rs 2,52,968 crore is the third most valued company, followed by ITC (Rs 2,49,144 crore) and Coal India (Rs 1,89,017 crore). Market capitalisation or the value of a listed company is arrived at by multiplying the total number of its shares with its stock price on a particular day or time. This figure changes daily with the change in the stock price. (PTI)
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Suzlon Group, the world's fifth-largest wind turbine maker, has appointed Amit Agarwal as chief financial officer of its wholly owned unit Suzlon Energy Ltd.Agarwal will take over from Kirti Vagadia, who will become the head of finance of Suzlon Group, which also includes its wholly owned German unit REpower, the company said in a statement on Friday, 22 March 2013.Agarwal previously worked as chief financial officer of India's Essar Steel, and in his new role will report to Suzlon Group Chairman Tulsi Tanti, the statement said.Suzlon's lenders in January approved a plan to restructure $1.8 billion of debt after the company defaulted on a $200 million convertible bond redemption last October.The company had net debt of about $2.5 billion at the end of December.(Reuters)
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As the India infrastructure story unfolds, many large global corporations are expanding their presence in the country. Uwe Krueger, chief executive, WS Atkins — one of the leading design, engineering and project management consultancies globally — was in India recently to inaugurate WS Atkins’ new design centre in Gurgaon. The spanking new centre will accommodate 500 design engineers. This is in addition to the 1,000 people at the Bangalore facility. The £1.7-billion WS Atkins, official design partner for the London Olympics 2012 has been involved in the building of many iconic structures around the world including Dubai’s Burj Al Arab, the tallest all-suite hotel in the world and providing full design and management of the civil works on the Dubai Metro. Atkins is currently working on the Namaste Tower, a 300-metre, 62-storied building in Mumbai. Krueger spoke to BW Businessworld’s Anup Jayaram on the potential of using India as a design centre for the world. Excerpts:You are expanding your Indian design operations. How critical is India for Atkins’ expansion plans?I took the decision to start the Delhi office in late summer last year. This office is clearly about growth and expansion. By adding 500 people to the 1,000 that we have in Bangalore makes us possibly the largest engineering & design representation that any of the international design companies now has in India. It comes with the additional clear will from our side to be much more present in the project business in India. We have been involved with two stations in the Kolkata metro, in the Hyderabad metro, the Namaste tower in Mumbai and master planning work in many places and low carbon design work for master planning. That is something that we believe strongly is an area where we are very competitive and add a lot of value.We set up the Bangalore office in 1995 as a global design centre (GDC) basically working for the whole Atkins universe and it grew steadily. The principle we put in place right from the very beginning was to have highly qualified engineers here. So we took a lot of emphasis in training our colleagues there so that basically today what we have in Bangalore is exactly the same engineering level of sophistication that we have in the US, Hong Kong and the UK. We have senior engineers who contribute to signaling technology, aerospace. It’s not very well known, but we do a lot of aerospace engineering out of Bangalore. We do independent validation and testing of carbon composite structures. Then of course general infrastructure design that includes water, iconic structures like super towers in the Middle East and in China is done in Bangalore now.We need to attract the best talent. For that we cooperate with the leading engineering universities worldwide. We have a strong cooperation with the Universities of Southampton and Oxford. And we encourage them to reach out to Indian colleagues to foster ties. What bigger projects are you looking for out of India?In the long-term, all kind of master planning work that is connected with the Delhi-Mumbai and Mumbai-Bangalore corridors are of enormous interest to us. Second, we are looking at all complex metro networks specifically connected to tunneling. In Delhi we did a small bit of the work on tunneling. In Hyderabad we have been asked to do the validation of the design by L&T.If you look at the architecture and design side of our business, we come from a strong presence in the hospitality business. The Burj al Arab, the sail shape building was our design; 5-star and 7-star hotels in China and the Asia Pacific. The expansion of the Jumeirah group here in India is a project we feel very qualified for. In addition to that we have an energy practice. Are you looking at buildings and hotels here?Yes, the large, iconic buildings are where international expertise would be needed. These would be large structures that would be a landmark. The Indian School of Business in Hyderabad is a project managed by us. We were the official design partners for the London Olympics. That’s the degree of precision that we offer. How the highly contaminated site was converted into an Olympic park stunned the world. That’s very much an expertise in turning existing urban infrastructure into something that is much more liveable and sustainable in the future.We did a major study about future proofing cities. It concentrates on the fastest growing cities in the developing world. We did that with the DFID, UK. Two projects that are connected to that in India are Madurai and Mysore where we applied the master planning knowledge for sustainable design. The general challenge is how you apply a holistic approach to water and waste water management when it comes to transport infrastructure, energy infrastructure in urban areas. It is not enough to do a silo approach. If you want to arrive at something that is a sustainable living and working environment, you have to consider all of them together. That is what we have demonstrated capable of doing in London, in Baku, Azerbaijan; be it in Hong Kong or other densely populated areas. Another aspect that we discussed with the Indian government during the state visit is transport oriented development.What are the problems that you face here in major projects?The challenge here is that if you want to invest in complex and expensive infrastructure like an urban metro, you need to find a way to finance that not only out of tax payers. In order to generate revenues, you need to design revenue generating real estate around the transport hub. So concepts that have proved to be very helpful in getting private financing in the UK, Hong Kong and the Middle East is something we believe will be very helpful here in India to make financing easier. That will attract more private development.Who are your major competitors here?We have international competition. These are largely companies based out of the US. We are typically not competing with Indian firms. We are partnering with these companies. We bring the additional knowledge and expertise for the very sophisticated part of the engineering, we are partnering local companies. We do a lot of international design out of India. The projects that we do out of here are at the highest levels of engineering complexity and Indian engineers’ ability to deliver these projects is remarkably high.One of the most complex projects that we handled was the Dubai Metro. If anyone in the world has fallen in love with the car, it is the population in the UAE. You needed a design that entices people to use public transport. We produced an iconic design for metro stations which has seen a utilisation that exceeded expectations by a factor of three. That is what I call a holistic approach to design and engineering.What sectors are you focusing on in India?We focus largely on the transport sector. So we talk about rail, complex bridges and highways, mass rapid transit and high speed rail. We are clearly very interested in urban transit projects. It is an area of core expertise for us. I think we can bring in the sophisticated part of the engineering to the table here.Another area that I would like to mention here is energy. In energy, we are among the largest engineering companies for nuclear power. UK was the first country to use civil nuclear for energy purposes. The entire fuel cycle from uranium and plutonium to the nuclear facilities is a very experienced industry. We are currently engaged in all major nuclear projects. We are heavily engaged in the UK. In India we are very interested in expanding our presence. Atkins India is among the very select organisations that have Department of Atomic Energy India’s permission to export design work out of India. This was very important for our engineers to work on international projects.Isn’t there a rethinking globally on nuclear power post-Fukushima?Even in Japan, there is some rethinking under the Japanese administration on re-opening nuclear power plants. The general rationale is that countries like China, India need to have an alternative to the large penetration of coal fired power plants. There needs to be a base-load alternative which in the future will be nuclear. So this is a clear trend that you can see. It is the investment into new nuclear plants; but it also in managing the whole fuel cycle that is needed. We have enormous experience when it comes to these aspects of the nuclear supply chain.Nuclear is one of the fastest growing businesses in Atkins. We have more than 20 per cent growth in the nuclear energy business because our engineering expertise is in such high demand. And even at the other end of the spectrum, there are older nuclear power plants that now need to be decommissioned.Where does the bulk of Atkins’ business come from?When I came on board as the CEO, 60 per cent of the business was from Europe. Now it is the other way round. We are expanding a lot in the Asia Pacific region.
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Reliance Industries has said it will give up about 56% of "low prospectivity area" in its eastern offshore KG-D6 block to retain only the portion where oil and gas discoveries have been made.In an investor presentation after announcing the January- March quarter financial results, RIL said a "proposal for relinquishment of low prospectivity area (has been) submitted" to the government.Only "3,412 square kilometers of area" out of a total of 7,645 sq km in KG-DWN-98/3 or KG-D6 block will be retained, it said.The area RIL intends to retain contains 18 gas and one oil discoveries including the currently producing Dhirubhai-1 and 3 (D1&D3) gas and MA oil and gas fields.RIL said it has submitted to authorities revised field development plans for D1&D3 as well as D26 or MA fields that includes work-overs and facility upgrade to improve gas production."Next wave of projects to exploit the undeveloped discovered resources (will be) targeted over the next 3 -5 years," it said.Of the remaining finds, the government had last year approved field development plan for four smaller discoveries and the company has submitted investment plans for another cluster known as R-Series.Investment plans for other satellite (D29, D30 and D31) will be submitted once upstream regulator DGH approves their commerciality.RIL made the area relinquishment offer last month just as the oil ministry was readying an order asking the firm to vacate some 5,970 sq km of area of KG-D6 block.Contractually, companies are required to relinquish 25% of the area in an oil and gas block at the end of first phase of exploration that spans some three years.At the end of second phase, 50% of the area is to be given up and by the third phase only such area is allowed to be retained where the company has made a discovery and is required for development and production of the same. The second and third phases are of two years duration each.RIL and its partner Niko Resources of Canada were awarded the KG-D6 block in 2000. The three-year Phase-1 ended on June 7, 2003 while the 2-year Phase-II expired on June 7, 2005. The third phase ended on June 7, 2007.Sources said Directorate General of Hydrocarbons (DGH) in 2006 agreed to RIL proposal of declaring the entire 7,645 sq km as discovery area, thereby allowing the company to retain the full area.The decision was ratified by a committee headed by Additional Secretary in the Ministry and by the Oil Minister thereafter.But the decision was questioned by government auditor CAG as at the end of the third phase, only 79% of the block area was covered by 3D seismic survey and yet the entire area was declared a discovery area.CAG in its performance audit in 2011 had asked the Ministry to review determination of entire contract area of KG-DWN-98/3 (KG-D6) as 'discovery area'.In the aftermath of CAG's observation, the DGH recommended to the oil ministry that RIL should be informed that an area of 5,970 sq km is treated as having been relinquished in the first instance.Sources said the ministry had not yet served the relinquishment order on RIL.RIL-Niko have made 18 gas and 1 oil discovery in KG-D6 block. Of these, the largest gas finds, Dhirubhai-1 & 3, were brought into production in April 2009 and the oil discovery, MA began pumping in September 2008.KG-D6 output has dipped from 69.43 million standard cubic meters per day achieved in March 2010 to under 17 mmscmd this month.(PTI)
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Indian conglomerate Reliance Industries Ltd posted a 32 per cent rise in its quarterly profit on Tuesday, 16 April 2013, as a rebound in margins at its core refining business offset falling oil and gas revenue.Reliance, controlled by India's richest man, Mukesh Ambani, said net profit in its fiscal fourth quarter which ended on March 31 rose 32 per cent from a year earlier to a higher-than-expected Rs 5,589 crore.Revenue, however, fell 1.4 per cent to Rs 86,618 crore, as oil and gas revenue was down nearly 39 per cent in the quarter. For the full fiscal year, gas output at its main KG Basin offshore field fell 39 per cent.The company, which operates the world's biggest refining complex in western India, reported an average gross oil refining margin of $10.1 per barrel for the quarter compared to $7.6 in the same period last year.Analysts had expected Reliance to post a net profit of Rs 5480 crore, according to Thomson Reuters data.Reliance, India's third biggest company by market value, has been under pressure from investors due to its slowing energy business and a drive into consumer-focused sectors such as telecoms, retail and financial services, which have yet to turn a profit.The company said it has cash and equivalents of Rs 82,975 crore.The company this month signed a fibre optic sharing deal with Reliance Communications, controlled by Mukesh Ambani's brother Anil, that will help speed up the rollout of its planned 4G telecom services.The government is expected to increase natural gas prices by early 2014, which would help Reliance and its partner BP Plc justify higher expenditure to offset declining production on the KG block.Shares in Reliance closed up 1.4 per cent at Rs 804.95 ahead of the results. The company, valued at roughly $48 billion, has seen its stock fall 4 per cent so far in 2013, roughly in line with a 3.5 per cent drop in the BSE Sensex during in the same period.(Reuters)
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