Weekly Newsletter - May 24 2008

SBI to resume tractor loans with immediate effect

State Bank of India (SBI) found itself in the eye of a raging storm after newspapers reported that the public sector banking giant had decided to suspend fresh loan disbursements for buying tractors and other agriculture equipment. "The bank has put on hold financing New Tractor and Farm Mechanisation activities with immediate effect in view of the very high overdues in this sub-segment of agri advances," SBI said in a May 16 circular. The decision will be reviewed based on the progress achieved in reduction of overdues in due course," it added. The circular sparked a major uproar across the country, with farmers, tractor manufacturers and political parties criticizing the bank's move. The outrage reached alarming proportion and eventually SBI had to withdraw the circular. "We regret that our circular dated May 16, concerning tractor loans has been misunderstood and has given rise to concern," SBI Chairman OP Bhatt said. The intent was to sensitise the borrowers to avail the facility under the loan waiver scheme that was announced by the government, in the Union Budget, said Anup Banerjee, deputy MD and head of agri business at SBI. The bank would have resumed lending after the loan waivers were executed, he said. Finance Minister P. Chidambaram said the circular was withdrawn at his behest as it was poorly worded and not justified.

Essar's Esmark bid hits roadblock

Essar Steel too was in the limelight as its proposed acquisition of US-based steel company Esmark ran into some trouble. Russia's steelmaker Severstal matched the Essar group’s offer to buy Esmark for US$17 per share, that it said was worth US$1.2bn. The Russian company’ offer came exactly 20 days after Essar Steel Holdings announced its agreement to acquire Esmark. Severstal appointed Merrill Lynch as financial advisor. The Essar offer was approved by the Esmark board but failed to get the support of the United Steel Workers, the main trade union of Esmark. The union's contract allows it to reject any deal that changes control of the US company. Severstal said it has the support of Esmark's main union. Reports suggested that Essar Steel Holdings may raise its bid for Esmark. The Ruias will submit its revised bid after negotiating with the United Steel Workers, according to reports.

Margins under pressure: ACC

There is tremendous pressure on margins because of rising input costs and the company will have to hike prices once the freeze ends in about three months, ACC said. Core margins had fallen 4% in the January-March quarter and would see more erosion in April-June period, officials said. "Given the current situation in the industry, ACC is under tremendous pressure as costs are going up... not incrementally, but leap-frogging," ACC MD Sumit Banerjee said. He said ACC would raise prices after the three-month freeze is over. "If we can, we will," Banerjee said. Earlier this month, ACC had said it would hold prices for 2-3 months after the Government asked cement companies to help contain inflation. ACC's CFO Onne van der Weijde said core margins are being eroded by 1% each month. Core margins, which exclude interest, taxes, depreciation and amortisation, were 26% in the first quarter ended March, he said, adding they fell despite a 9.5% rise in sales. "For the last 12 months, the company's factory-gate prices are falling and costs are increasing. The next nine months will be no different," Weijde said, adding that cost had risen 18-20% in the year ended April.

HP need not make open offer for Mphasis: EDS

Electronic Data Systems Corporation (EDS) said that Hewlett-Packard (HP) will not be required to make an open offer to the shareholders of Mphasis if the proposed merger with it goes through. HP won't be required to make an open offer for buying Mphasis shares under SEBI's takeover regulations, as a result of the exemption contained in section 3(1)(j)(ii) of the regulation, EDS said in a statement. HP and EDS have noted that certain press reports in India appear to suggest that, if the proposed merger is consummated, HP may be required to make a tender offer for shares of Mphasis, which is a subsidiary of EDS, the US company said. On May 14 , HP said that it will acquire EDS for US$13.9bn. Under the terms of the deal, HP will pay US$25 per share in cash for EDS and expects the deal to close in the second-half of 2008. EDS owns 60.9% in Mphasis and according to SEBI regulations, any company buying 15% or more in another company, has to make an open offer for 20% more shares in the target company.

Tata Steel secures permit to find Iron Ore

Tata Steel bagged permit to find iron ore in Jharkhand as it doubles production to 10mn tons. The permit allows Mumbai-based Tata Steel to prospect an 1808- hectare (4,468 acres) area, the Ministry of Mines said in a statement. Last month, Tata Steel was allowed by the nation's highest court to seek the environment ministry's clearance to mine iron ore in a forest area in Chhattisgarh, where the company plans to build a five million-ton plant. Jharkhand, Chhattisgarh and Orissa account for 70% of the country's coal reserves and half its iron ore deposits.

Tanti talk turns REpower shares volatile

Shares of REpower Systems turned volatile amid reports that Suzlon Energy, which had acquired a 34% stake in the German company a year ago, was looking to sell shares in the open market. "We may think of selling some stake in the market as it will lead to value creation," Suzlon chairman Tulsi Tanti was quoted as saying while announcing financial results for the year ended March. Following Tanti's reported remarks, REpower stock fell to €225 in Frankfurt before recovering. On Monday, it had touched a 52-week high of €243.54. However, later in the day, Tanti denied reports about stake sale in REpower. The company also released a clarification in the evening, saying that there was no change in its overall strategy regarding REpower and that it will proceed as originally planned. Suzlon currently holds 33.6% in REpower and has an option to acquire 30.9% from French energy giant Areva and another 23% from Martifer by May 24, 2009.

Ranbaxy launches operations in Yemen

Ranbaxy Laboratories said it has commenced operations in Yemen, introducing its products to around 350 doctors. Ranbaxy has tied up with Pharma Ltd. (Natco) as business partner for its Yemen operations. Pharma is one of the pioneers in the healthcare sector in Yemen. Ranbaxy has robust plans for the Yemen market and will focus on therapy areas such as Anti infectives, Gastro-intestinal, Cholesterol lowering and Anti-Allergic categories. Ranbaxy is the first Indian company to have established such a major presence in

Educomp Solutions picks 51% stake in Learning.com

Educomp Solutions announced that it has acquired a 51% stake in leading US-based elearning company Learning.com. The majority stake has been acquired at an investment of US$24.5mn, which included the purchase of existing shares as well as an infusion of new capital. Founded in 1999, Learning.com is the premier provider of Web-delivered curriculum and assessment, and partners with schools and districts throughout US to improve student learning outcomes. It currently serves nearly two million students in schools across the US. This investment provides Educomp with unparalleled distribution access to over 800 districts and 2mn students across the US and leverages its substantial content development and IP capabilities to reach out to North American markets.

Firstsource wins 3-year order from Bharti Airtel

Firstsource Solutions, one of the leading global BPO services providers and Bharti Airtel, India's largest private telecom services provider, signed a three-year outsourcing agreement. Firstsource will provide a suite of BPO services covering both voice and backoffice in areas such as customer accounting, VAS provisioning, fraud & credit monitoring, customer service, collections, customer retention and the likes to Airtel from its centres in Chennai and Mumbai. It will set up centres in Vashi, New Bombay and Chennai for Airtel and expects to have over 1000 employees in the first year focused on providing services in English and 8 other regional languages to Airtel’s customers.

Tale of two dubious re-listings

An obscure company by the name KGN Industries caught the attention of most market players after its shares zoomed to a jaw-dropping Rs55,000 in a matter of just a few minutes on May 21. KGN, which is an NBFC (formerly known as Royal Finance) got re-listed and resumed trading at Rs72 on the BSE. Early in the session trading was light, but as time progressed bids for the stock slowly inched towards the Rs1,000 mark. Within no time, the stock's prices surged from Rs10,000 to Rs55,000. Since it was the day of re-listing, as per current rules no circuit-breakers were in place, allowing the stock a free run. Fortunately, BSE officials found that orders were being placed at unrealistic prices. As a result, trading in the scrip was suspended after nearly two-and-half hours of trading. KGN stock closed at Rs15,001 on thin volumes of just 827 shares. As if that wasn't enough market participants were stunned to witness another dubious re-listing the very next day. This time, the beneficiary was a company called Sylph Technologies. The company's shares got re-listed at Rs152, and then surged to an intra-day high of Rs800. The stock had closed at Rs0.80 per share before getting suspended. Sylph Tech closed the day at Rs200 amid volume of only 6,500 shares. Shares of KGN was locked in 5% lower circuit on Friday, slipping from its high to end at Rs4,863. The total number of shares traded on the counter was only 36 shares.