Direct tax receipts pierce Rs2-lakh crore mark
Spurred by the current economic boom and robust corporate profits, the Government's revenue kitty just keeps getting bigger and bigger, with the direct tax receipts crossing the Rs2 lakh crore mark for the first time ever. Net direct tax collection grew by 36.5% to Rs205,115 crore up to March 20 as against Rs150,269 crore in the same period last fiscal. Advance tax receipts for the same period were up 35.3% at Rs117,114 crore versus Rs86,559 crore in the year-ago period. This figure could have been much higher but for the public holiday in Maharashtra, probably the biggest contributor to the exchequer, on March 19. With the public sector bank unions calling off their three-day strike next week, tax collections can only go one way, that is up. Corporate tax collection climbed 40.7% to Rs128,354 crore up to March 20 compared to Rs91,236 crore during the corresponding period a year earlier. Personal income-tax receipts, including Fringe Benefit Tax (FBT), Banking Cash Transaction Tax (BCTT), Securities Transaction Tax (STT), grew by 30.2% to Rs76,472 crore as against Rs58,748 crore in the same period last year.
Lok Sabha okays bill to phase out CST
The Lok Sabha cleared a bill to phase out and abolish the Central Sales Tax (CST) in the next three years. The Taxation Laws (Amendment) Bill, approved by the lower house of parliament, seeks to amend the CST Act of 1956. It will cut CST by 1% annually beginning in April. The legislation includes changes in the Additional Duties of Excise (goods of special importance) Act 1957, which proposes to exclude tobacco, enabling states to levy Value Added Tax (VAT). States have been demanding the end of the CST ever since VAT was introduced two years ago. The bill now has to be approved by the Rajya Sabha and get the President's consent before it becomes a law. The Government aims to eventually phase out CST and will merge some central and state levies into a single Goods and Services Tax (GST) by 2010 to reduce the tax burden on consumers and businesses. Finance Minister P. Chidambaram said in the Lok Sabha that CST is proposed to be reduced from 4% to 3% from April 1. CST will eventually be abolished from March 31, 2010, he said. The package for compensation to states for revenue loss on this account shall consist of non-monetary as well as monetary measures, the Finance Minister said. Chidambaram said that CST being an origin-based tax was inconsistent with VAT which was destination-based tax. He said that CST results in cascading of tax (tax on tax) since it was not rebatable against VAT. The Taxation Laws (Amendment) Bill proposes to drop tobacco from the list of declared goods to enable the states to levy VAT on tobacco at a rate higher than the 4% rate applicable to declared goods.
FM-Cement Cos talks fail
As expected, the meeting between the cement manufacturers and Finance Minister P. Chidambaram was inconclusive with both the sides sticking to their respective stance. While Chidambaram reiterated the Government's demand for reduction in cement prices, cement producers once again spurned the request. "We have information how much your sales have increased. How much your PBT has increased. How much your PAT has increased. So you should come forward with some proposals on moderating cement prices," Chidambaram said in New Delhi after the meeting. But, the cement makers are believed to have told the Government that nothing can be done on reducing prices. According to reports, cement companies told the Government that they had started doing well only since the latter part of 2005 whereas in the previous 15 years they were struggling. The Government is still clamoring for more cuts in cement prices. It has even proposed a five-year tax holiday to set up more capacity. The Economic Times in its March 20 edition reported that the move was aimed at ending the current demand-supply mismatch and soften prices. "If they find difficulties in adding capacity or accessing coal or raw materials, certainly the Government will help," Chidambaram said in his reply to the debate on Budget 2007-08 in the Rajya Sabha on March 19.
Govt gives green signal to 74% FDI in telecom
The Government finally approved the revised Press Note 5, clearing the decks for 74% Foreign Direct Investment (FDI) in the telecom sector. The decision was taken at a meeting of the Union Cabinet on March 22. At present, the FDI cap in telecom is 49%. The Government has incorporated a series of new security norms, especially on the contentious issue of Remote Access (RA), to allay the concerns raised by intelligence and defence establishment. All telecom operators will have time till the first week of June to comply with the new set of guidelines. Press Note 5 was first notified in November 2005. At its meeting on December 8, 2006, the Cabinet had approved other sticky matters such as allowing foreign nationals to hold key positions of Chairman, MD, CEO and CFO, subject to the approval of the Home Ministry. However, chief officer in charge of network operations and chief security officer have to be resident Indian citizens.
TRAI slashes annual ADC charge
The Telecom Regulatory Authority of India (TRAI) announced that it was cutting the Access Deficit Charge (ADC) from Rs32bn in the current fiscal year (2006-07) to Rs20bn in the coming financial year. ADC is a fee paid by all telecom operators to fund loss-making rural network expansion by public sector Bharat Sanchar Nigam Ltd. (BSNL). The telecom regulator also abolished the ADC on all outgoing international calls from a previous 80 paise per minute. The charge on incoming international calls has been cut from Rs1.6 per minute to Re1 a minute. For national long-distance (NLD), the ADC burden has been slashed by 50%. The new fee structure will be applicable from April 1. However, the Cellular Operators' Association of India (COAI) expressed its disappointment on the revised ADC regime. T. V. Ramachandran, Director General of COAI said that it was unfortunate that despite the overwhelming industry view that domestic consumer should be spared the burden of ADC, the regulator continues to prescribe a levy of 0.75% of Adjusted Gross Revenue (AGR) on domestic telecom services. The existing level is 1.5% of AGR. As a result, all telecom operators are likely to marginally reduce national long-distance rates while international call rates are expected to be cut by up to 20%Chinese steel firms suspend Indian ore shipments
The tax slapped on iron ore exports in the budget prompted at least 10 Chinese steel companies, including Baosteel, to suspend shipments from India, even as the mineral industry warned that exports of iron ore from India, which has the world's fifth-largest reserves of the mineral, may fall by 32% this month. The new tax makes iron ore from India less attractive and China's mills are likely to look for other alternative sources like Australia and Brazil. The Government on Feb. 28 announced a tax of Rs300 per ton on iron ore exports in a bid to ensure that local supplies are sufficient to meet domestic demand. Indian companies, including Sesa Goa Ltd. exported 4.98mn tons between March 1 and March 20, and may ship a further 2.18mn tons by the end of the month, R.K. Sharma, Secretary General of the Federation of Indian Mineral Industries said. Exports of the steel making ingredient totaled 10.6mn tons in March 2006. India accounted for 23% of China's 326mn tons of iron ore imports last year, making it the second-biggest supplier after Australia.
ITC shares slide on VAT fears
Shares of ITC Ltd. slumped further after West Bengal and Maharashtra governments said they will impose 12.5% Value Added Tax (VAT) on tobacco and tobacco products starting April 1. Also, the Lok Sabha cleared a bill that will allow states to impose 4% VAT on tobacco products. The legislation includes changes in the Additional Duties of Excise (goods of special importance) Act 1957, which proposes to exclude tobacco, enabling states to levy VAT. ITC Chairman Y.C. Deveshwar said that profit margins of the company, India's biggest cigarette maker, will be eroded by the proposed levy of VAT on tobacco by 28 states. About half the company's sales comes from tobacco. ITC will now have to bank on faster growth from its new businesses, such as foods, retail and garments, to mitigate the impact of higher taxes on cigarettes.
Torrent, Teva in race for Merck's generic biz: report
Torrent Pharmaceuticals Ltd. and Israel's Teva are the only two companies left in the race for acquiring the generic business of Germany's Merck KGaA. According to reports, Torrent in tandem with private equity firms Fortress Investment Group and Greater Pacific Capital, are closer to the finish line than Teva. A financial daily says that the other two contenders, Mylan and Actavis have pulled out of the race. Earlier, India's Ranbaxy had withdrawn its bid, citing expensive valuation, estimated by some analysts at around US$6bn. Shares of Ranbaxy rallied on the news. Cipla, who also partnered with private equity players, was not short-listed while Dr. Reddy's didn't submit a bid, saying the price was too high and the timing was not appropriate. If the deal sees the light of day, Torrent will manage Merck's generic business while Fortress and Greater Pacific will be the financial investors. Majority of the funding for the transaction is expected to come from Fortress, which manages US$30bn in assets
Essar Shipping fails in delisting attempt
Shares of Essar Shipping Ltd. declined after its parent Essar Shipping & Logistics Ltd. failed to garner the required number of shares from the public shareholders in order to delist the company from the BSE. The Reverse Book Building Process closed on March 16. "As the aggregate number of shares tendered by the public shareholders was less than the number required to reduce the public shareholding of the target company below the minimum level for delisting, the offer has failed in terms of the guidelines," Essar Shipping said in a statement. Essar Shipping will remain listed on BSE. The shares deposited in the Special Depository Account of the trading members during the reverse book building will be returned to the respective public shareholders in accordance with the guidelines. The Ruias are planning to turn into a privately held group by delisting Essar Steel Ltd., Essar Steel Ltd., Essar Oil Ltd. Earlier, it had delisted its telecom arm, Essar Tele-Holdings Ltd., and its US-based BPO subsidiary, Aegis Communications Group.
Govt to sell Maruti stake in next FY
The Government will sell its remaining stake in Maruti Udyog Ltd. in the next financial year, Finance Minister P. Chidambaram said. "The Government has decided to do it in the next (financial) year," Chidambaram told reporters in New Delhi when asked about media reports that the Centre had put on hold its plan to sell the stake. The Government has put off selling its stake in Maruti following the sharp fall in the company's shares in the last month or so, the Business Standard said on March 17. The Government this month accepted bids for its 10.27% stake in Maruti. Public sector financial institutions, banks and mutual funds have submitted initial offers for the stake. In December, the Union Cabinet approved the sale of the Government's residual stake in Maruti. SBI Capital Markets Ltd. and Kotak Mahindra Capital Company Ltd. are the advisers for the stake sale. It may be recalled that the Government raised Rs15.67bn in January last year selling an 8% stake in Maruti to nationalised banks, insurance and financial companies.
RIL seeks EOU status for Jamnagar refinery: report
Reliance Industries Ltd. (RIL) reportedly sought government approval to turn its existing Jamnagar refinery into an export oriented unit (EOU), to enable it to import crude oil without paying any duties. RIL applied to the Commerce & Industry Ministry for grant of EOU status for the Jamnagar refinery, according to reports. The company's subsidiary Reliance Petroleum Ltd. (RPL) is also building an export-oriented 29mn tons per year refinery adjacent to the existing RIL refinery. The new refinery is likely to be completed in 2009. RIL plans to convert the existing refinery into an export house as selling petroleum products in the current environment is uneconomical due to the subsidy public sector companies receive from the Government.Idea inks IT outsourcing deal with IBM
Idea Cellular Ltd. signed a 10-year business transformation agreement with IBM India to integrate, innovate and transform it's business processes and IT infrastructure. The agreement is designed on an innovative risk-reward revenue sharing model, Idea said in a statement. It covers all of the company's existing operations and potential new additions, it added. The 10 year pact, depending upon Idea’s business revenues and circle expansion, would size around US$600mn to US$800mn. The deal will cover billing, call center operations, customers care management and data management for Idea, the newspaper said. Outsourcing of IT infrastructure is likely to minimise technology risk and reduce the operational costs for Idea. According to industry analysts, Idea is likely to save around US$15-20mn from this contract.
Deals, deals and more deals
Britannia Industries Ltd. announced formed a Joint Venture with Khimji Ramdas Group to run two bakery product companies in the fast growing Middle East market. Britannia and its associates acquired 70% beneficial stake in Dubai based Strategic Foods International LLC and Oman based Al Sallan Food Industries Co SAOG. The two companies are significant regional players in biscuit and cookies segment in the GCC markets and export their products to over 70 countries around the world, Britannia said in a statement. The companies have a combined annual turnover in excess of about Rs1.6bn with leading brands such as Nutro, Family Choice and Bakers Pride, it added.
Canara Bank said it was selling a 49% stake in Canbank Investment Management Services Ltd. (CIMS) in favour of Robeco Groep NV for Rs1.15bn. Canara Bank and Robeco signed an agreement to form a joint venture and hope to start joint operations after getting regulatory approvals this year. Robeco is part of Rabobank Group of Netherlands and manages assets worth US$185bn in nine countries. CIMS, the Asset Management Company (AMC) of Canbank Mutual Fund, is a 100% subsidiary of the Canara Bank. CIMS has Rs40bn worth of assets under management. It will be renamed Canara Robeco AMC after the deal is completed. In August 2006, Canbank Mutual Fund announced the buyout of schemes of GIC Mutual Fund. This brought in an additional Rs1.5bn for Canbank MF.
Shoppers Stop Ltd. said that its Board of Directors has decided to exercise the option of acquiring 19% shareholding in HyperCity Retail India Pvt. Ltd., out of the total 51% of the option available to it. HyperCity Retail is a part of K Raheja Corp, (Chandru L Raheja Group). It has at the moment, only one store built over 120,000 square feet in Malad, Mumbai. It sells an array of products - groceries, fresh foods, home needs, garments and consumer durables. Last month, Shoppers’ Stop and HyperCITY Retail signed a MoU with UK’s leading retail chain Home Retail group to develop the Argos retail format stores in India. HyperCity Retail has announced plans to establish a network of 55 hypermarkets across India, by 2015. The stores will be strategically located in middle class areas in tier I and II cities. The retailer plans to open three hypermarkets in Mumbai, Ahmedabad and Pune by the end of 2006.
EPIC Energy Ltd. said that it had acquired Hydragen Infrastructures Pvt Ltd, Bangalore based company operating energy saving devices in the Navi Mumbai Municipal Corporation. With this acquisition, the company has become the largest operator of energy saving devices for the Navi Mumbai Municipal Corporation, with about 3000 KVA of installed capacity, covering all the towns situated in the jurisdiction, EPIC Energy said. EPIC Energy recently acquired manufacturing facilities at Por GIDC in Vadodara. This manufacturing facility, coupled with Hydragen's formidable service infrastructure, will enable the company to enhance its value offerings to its clients, EPIC Energy said.
RSWM Ltd. announced that it will acquire a 48.17% equity stake in Cheslind Textiles Ltd., a 100% EOU manufacturing cotton yarn with its headquarters based in Bangalore. The company will acquire the shares in Cheslind Textiles at Rs25 per share from the promoters for Rs278mn. RSWM proposes to fund this acquisition through internal accruals. In line with the listing and SEBI guidelines, RSWM also made an open offer to the shareholders of Chestind Textiles to acquire an additional 20% stake at the same price. If the open offer is successful, the company will have 68.17% stake in Chestind Textiles for Rs393mn.
Rain Comm, Rain Calcining merger ratio at 2:7
The Boards of Rain Commodities Ltd. and Rain Calcining Ltd. approved the share exchange ratio submitted by Ernst & Young and Grant Thornton for their proposed merger. The two independent advisors proposed a share exchange ratio of 2:7 i.e. two equity shares of Rain Commodities for every seven equity shares of Rain Calcining. The Record Date will be fixed after the approval by the High Court of Andhra Pradesh. The two companies' Board also decided to transfer the cement division from Rain Industries Ltd. (100% subsidiary) to Rain Commodities (holding company) with effect from July 1, 2006, besides the transfer of Calcined Petroleum Coke (CPC) and Power Business from Rain Commodities to Rain Industries with effect from April 1, 2007. The Board of Rain Calcining also approved expansion of calcining capacity by 480,000mn tons per annum by way of a Greenfield facility at Vishakhapatnam at a projected cost of Rs3.34bn. The expansion will include a cogeneration facility to generate 49 MW of electricity. The proposed plant is expected to commence its operations in October 2008. Separately, US-based Oxbow Carbon & Minerals Holdings, Inc. raised its offer for Great Lakes Carbon Income Fund, intensifying the bidding battle with India's Rain Commodities Ltd. The Canada-based Great Lakes, which owns 73.56% in GLC Carbon USA Inc., received a revised proposal from Oxbow Carbon to acquire all assets of Great Lakes at C$14 per Unit in cash. Rain Commodities (USA) Inc. and Rain Commodities (Canada) Inc, the wholly owned subsidiaries of Rain Commodities have time till March 27, to match the Oxbow proposal.
Indiabulls' realty arm tumbles on listing
Indiabulls Real Estate Ltd. (IREL), the demerged realty arm of Indiabulls Financial Services Ltd. (IFSL), listed at Rs380.05 on the Bombay Stock Exchange (BSE) on March 23. The stock hit a high of Rs414.8 and a low of Rs328.1. The stock closed at Rs325 with 12.45mn shares changing hands on the BSE. The face value of the stock is Rs2 each. IREL, which recently demerged from IFSL, has a networth of Rs22bn. Currently, the company's projects, at various stages of execution, are valued at nearly US$5bn and they cover a land area in excess of 8000 acres. IREL has committed over Rs18bn on two urban redevelopment projects in central Mumbai. The total value of IREL's effective ownership (as on Dec. 21, 2006) in the project companies undertaking developments was pegged at Rs151.25bn, according to Knight Frank, a leading international real estate consultancy firm.
ICRA IPO subscribed 38 times
The Initial Public Offering (IPO) of credit rating agency ICRA Ltd. has been subscribed 38 times as on 15:00 hrs on March 23, the last day for submitting the bids. The company received bids for 98.29mn shares as against the issue size of 2.58mn shares. The price band for the issue was Rs275 to Rs330 per share. The issue size at the higher price band is at Rs851.7mn. ICRA is an associate of Moody's Investors Services. Moody's has a 29% stake in ICRA. The balance stake is held by leading financial institutions and banks like SBI, LIC, IFCI etc. About 26% of ICRA is being sold by current shareholders, and significant portion of it would be from IFCI. The state-run term lender is selling around 1.86mn shares. Current shareholders, including SBI are set to sell about 2.58mn shares in total. Moody's is likely to hold a stake of about 28% in ICRA after the IPO.
Advanta fixes price band at Rs600-650
Advanta India Ltd., a subsidiary of United Phosphorus Ltd., set a price band of Rs600-650 per share for its Initial Public Offering (IPO). The issue is set to open on March 26 and close on March 30. Advanta, an international agronomic seed company with principal operations in India, Australia, Thailand and Argentina, is entering the Indian capital market with a public issue of 3,380,000 equity shares of Rs10 for cash at a premium to be decided through the 100% Book-Building Process. The issue will constitute 20.08% of the post-issue paid-up capital of the company. The shares will be listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange Ltd. (BSE). The company has allotted 1,677,000 equity shares to a group of investors at a price of Rs625 per share under the Pre-IPO placement. Headquartered in Bangalore, Advanta is a wholly-owned subsidiary of United Phosphorus, one of the leading generic agrochemical companies in the world with operations in the United States, Australia, China, Latin America and Europe.
Fed leaves rates steady; alters language
As expected, the US Federal Reserve kept the benchmark short-term interest rate unchanged, citing elevated inflation pressure and mixed economic growth prospects. What's more, the American central bank made a subtle change in its accompanying remarks, switching from a hawkish stance to a more neutral one. The change signaled that Fed policy makers were moving closer to cutting rates if the problems in the housing market spread further. The Federal Open Market Committee (FOMC) kept the target for the federal funds rate, an overnight bank lending rate, at 5.25%. It was the sixth consecutive meeting where the Fed policy makers did not change rates after raising rates seventeen straight times between June 2004 and June 2006 in order to fight inflation. US stocks and bonds rallied after the Fed unexpectedly abandoned its tilt toward higher borrowing costs. That could mean that the Fed was not likely to raise rates in the near term and might even start cutting them if the situation demands later this year. "Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth," the FOMC said in Washington. While inflation is the predominant concern, the statement dropped a reference to additional firming, giving central bankers more flexibility on the direction of interest rates
BOJ keeps rates on hold
Bank of Japan (BOJ) decided to keep its key interest rate unchanged after lifting it a quarter point last month, amid continuing deflation worries in the world's second-largest economy. Central bank Governor Toshihiko Fukui and his policy board voted unanimously to keep the key overnight lending rate at 0.5%, the lowest among the G7 economies, the BOJ said in a statement. The bank doubled the rate last month. Government data released earlier this month showed that consumer prices were flat for the first time in eight months in January, fueling speculation that the central bank will leave rates on hold for a while before resuming the tightening. According to some economists, recent market volatility could also have had some bearing on the BOJ's latest decision. While others speculated that the Japanese central bank will wait until midyear parliamentary elections in Japan before deciding to raise rates again. Analysts and financial market players believe that BOJ may face opposition from the Government if it tries to raise rates again before nationwide parliamentary Upper House elections in July. The BOJ's next policy setting meeting is scheduled for April 9-10, after the bank's closely watched "tankan" quarterly survey on corporate sentiment set for release April 2.
China ups rates again
In its continuing attempt to cool down its overheated economy, China raised its key interest rate by 0.27% on March 17. The third rate increase by People's Bank of China in 11 months sent the yuan to its strongest since a fixed exchange rate was scrapped in 2005. Bonds fell after the surprising announcement. The People's Bank of China said in an announcement late that the benchmark one-year lending rate would be increased to 6.39% while the deposit rate would be set at 2.79%. The Chinese central bank said in a statement that the move was necessary to balance growth, stabilise prices and improve the overall structure of the economy. Separately, China's mainland's stock watchdog issued rules to ban listed firms from using share-sale proceeds to invest in securities as the Government moves to curb potential bubbles in the market. Public companies can't use the funds they collect from stock issuance to subscribe to new share sales, the China Securities Regulatory Commission said in a statement. Mainland-listed companies also can't use the proceeds to trade existing stocks, convertible bonds and proposed financial derivatives, according to the statementBarclays eyes ABN Amro
Barclays Plc confirmed media reports that it was in talks with ABN Amro Holding NV about a possible purchase of the largest Dutch bank in what would be Europe's biggest financial-services merger. Shares of Barclays and ABN Amro advanced as analysts weighed in favorably on a possible deal. Meanwhile, reports also said that ING was also eyeing rivals after the Barclays and ABN Amro deal. Some executives within Citigroup are pushing for the US banking giant to make a bid for ABN Amro, the Wall Street Journal reported. Citigroup is studying whether to make a bid for ABN Amro, and could make a hostile bid for ABN Amro, the Netherlands' biggest bank, the newspaper said, citing unnamed people familiar with the matter. Officials from both banks were not immediately available for comment. Barclays has sealed an exclusive agreement with ABN Amro and has drawn up a broad merger outline for a combined bank worth more than US $166bn that would be listed in London, headquartered in Amsterdam and have its two top jobs split.
Blackstone files for IPO
Blackstone Group LP, the private equity giant that has spent US$160bn taking companies private in the past two decades, plans to raise as much as US$4bn by going public. The company, founded in 1985 by bankers Stephen Schwarzman and Pete Peterson, will sell a minority stake in what will be the largest Initial Public Offering (IPO) by a US buyout manager. The IPO will give New York-based Blackstone cash to expand into new businesses and to buy out partners as they leave, according to a filing with the U.S. Securities and Exchange Commission (SEC). Blackstone's revenue more than doubled to US$1.12bn last year. Investment income, its largest source of profits, was US$7.59bn, a 48% increase from a year earlier. The firm didn't disclose the number of units it plans to sell or the expected price range.
EU clears Open Skies accord with US
In a move that will drive down passenger fares and open aviation markets to more competition, European transport ministers unanimously approved a landmark open skies aviation deal with the US. Douglas Alexander, UK's transport secretary, said the deal to allow European and US airlines to fly to any destination in Europe and the US would bring British consumers benefits of £250mn per year. British Airways denied that a price war will break out, even as rival BMI said it was planning to launch rival US flights from Heathrow. EU governments and the European commission claimed that transatlantic air travel will increase by 50% and passengers will save €15bn (£7.7bn) on fares by 2013. Meanwhile, Airbus's A380 made inaugural flights to the US in order to test the runway upgrades of airports that are trying to accommodate the world's biggest passenger jet, which has faced a series of embarrassing production delays and losses. The aircraft touched down in New York and Los Angeles ahead of schedule.
Motorola slashes forecasts, reshuffles top deck
Motorola shares sank to a two-year low on March 22 as analysts said that there was no immediate end in sight for the cell phone maker's financial woes. Analysts rushed to downgrade the company's stock one day after Motorola shuffled its top deck and announced its first-quarter sales would fall more than US$1bn short of earlier projections. The world's No. 2 cell phone maker said slumping sales in its cell-phone unit, which accounts for more than two-thirds of its sales, are largely to blame for is shortfall. Motorola said on March 21 it also would report a first-quarter loss in mid-April. The company said it now expects sales for the January-to-March quarter of US$9.2bn to US$9.3bn, and a net loss of 7 cents to 9 cents per share. It also expects sales, profitability and operating cash flow for the full year to be substantially below its prior guidance. Still, Chief Executive Ed Zander said he was confident a gradual recovery in the second half would help Motorola eek out a full-year profit.