Tuesday, June 28, 2011

Indian FCCB crisis an opportunity for Chinese Banks

Increasing cost of finance and  risk of FCCB crisis  is forcing Indian business tycoons to look towards dragon for help.  The sinking sensex  has created havoc on atleast 100 companies who have to repay more than  US$ 7 billion before December 2012.

The growth story of India during 2005 to 2008 had made the FCCB (Foreign Currency Convertible Bonds) route as the preferred mode of financing to India Inc. Now, when the maturity is approaching , but the shares of these companies are unable to recover for number of factors a new crisis is emerging. These companies are required to repay an estimated sum Rs 33,000 crore.  From the current margins most of these companies will find it difficult to repay.

The option is to look  for cheaper loans to meet these repayment obligations. Finance at lower rates can come only from  trade surplus countries. Japan used to be one such source in past.  China can be one of such sources in the present situation. Chinese banks have more surplus than demanded by internal industry. This can be a win-win situation for both the countries.

How FCCB crisis can grip a company was seen in last week when GTL shares slipped below 50% mark in two days.  The other major companies which raised money via this route include 3i Infotech, Subex, Sterling Biotech, Country Club, JSW Steel, Tata Motors, Rolta, Educomp, Jaiprakash Associates, Tata Steel, Great Offshore, Suzlon, Firstsource, Pidilite, GTL Infra, Bartronics, Kinetic Engineering, Aban Offshore, Moser Baer and Hotel Leelaventure.

When Indian Stock market was zooming  and it was considered  to be more promising that China, many institutional investors in west came forward to invest in Indian companies with an option to convert to equity share subject to achieving targeted appreciation.  The players in Dalal Street have spoiled the mood  and shares of certain sectors – Infra, realty and capital goods have slipped down drastically and there does not  seem any possibility of turning around.

If the targeted price is not achieved on the browsers, the companies have either to repay the borrowed money or reset the conversion price at a lower rate as was done by Suzlon and Gitanjali Gems.  Many companies may not like to lose stake at lower rate.

In this situation the Chinese banks may emerge as the big winners since the companies would not like to default on FCCB redemption. Financing within India is very expensive and west has its own problems. Chinese banks get an opportunity to park their surplus at a higher rate than their internal rates, but that  is much reasonable for Indian corporate world. Thus, after toys, consumer goods and machines China may command over financial needs of India as well.

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Thursday, June 23, 2011

Ramdev's Mission Black Money continues

Following is an email circulating that exhibits even if the UPA goverment has rudelessly crushed the Ramdev's agitation, it has ignited an spark which may explode any time. Advisors and uncontrolled spokes person like Digvijaysinh would only add fuel and damage the UPA further.

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Saturday, June 18, 2011

Why does Gujarat Govt Charges Highest VAT on CNG?

Gujarat Government is as bad as a greedy business tycoon who spares no opportunity to extract maximum from the needy customers. Gujarat Compressed Natural Gas (CNG ) consumer pays highest Value Added Tax (VAT) in the country. The state is the biggest consumer of gas in the country, accounting for 40% of the total gas consumed.

In contrast to national Capital where there is no VAT on CNG a Gujrati consumer has to pay 15% VAT. Because of this, a consumer here has to pay between Rs37-38 per kg, as compared to less than Rs30 a kg in New Delhi.

Neighbouring state of the nation capital, Haryana has a rate of 5%. The host of D6 gas block Andhra is very close to Gujarat with 14.5% followed by Uttar Pradesh with 13.5%. Other states are at the same rate of 12.5% VAT.

Why does Gujarat levi so much excessive VAT? According to state energy minister, Saurabh Patel ,

"Gujarat is totally dependent on imported LNG to meet its gas requirements. CNG rates in Gujarat will go down by as much as 30% if Centre allocates cheaper D6 gas to the state."

The habitual statements of Gujarat Ministers to blame Center for all evils is the sad part. Rate of VAT has nothing to do with the source of Gas whether D6 or imported. This can only change the base rate. Getting more allocation of D6 gas will only change the base cost and not the VAT rate. Gujarat Govt should understand that people know the difference, only problem is that there is no body to raise there concern. 

This also does not mean that Congress is for lower rate of taxes. UPA government has levied 14.42% Central Excise duty (including 3% education surcharge) on gas. Base rate control is also with them for which there is no mercy. During the next 12 months the pricing formula to be followed by the Gas Distribution indicates a rise of at least Rs 6 per Kg before this year end. If Diesel price hike comes soon, the total hike on gas may also come immediately.

This is the time when the government should make the segmentation of fuels for passanger transportation and and goods transportation. It is the time where goverment should take a call and encourage cleaner fuels and technologies instead of penalising the users of clean fuels.

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