Retail investors who entered buyback stocks have been hurt as stocks crash after initial bounce.

1. MONEY MONEY&BANKING 22
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short stories
MARK MOBIUS GOES LONG ON INDIA
Mark Mobius, who oversees about $26 billion in emerging-
market stocks at Templeton Asset Management, said he
plans to buy more shares of consumer and commodities
companies in emerging markets. “Valuations are attrac-
tive,” Mobius, Templeton’s executive chairman, said. “We
feel that this year would be a year of recovery of the stock
markets in the emerging markets.” It will continue to invest
in India even after a terrorist attack and fraud allegations
against Satyam Computer Services, Mobius said. The invest-
ment manager has sold all its shares in Satyam and didn’t
lose money because it “got out early,” he said. Templeton
will no longer invest in Satyam and has bought more shares
in the Tata group of companies, Mobius said.
ONGC GETS GANGA BASIN CONTRACT
Fundamentals set to drive markets
Oil and Natural Gas Corp has got a contract for oil
exploration in Ganga basin area of Bihar. The ministry of
petroleum and natural gas awarded the contract through an
international bidding process a month ago, petroleum
secretary R S Pandey said. ONGC will start exploration work
in the next one month and the process will be completed
were on-the-run bonds with a new
Bleak economic scenario, falling inflation within 3-4 years, Pandey said.
benchmark 30-year bond being auc-
US Treasury 10-year
expectations will prompt markets to factor in tioned. The cut-off on the 7.56% 2014
RS 650 CR PACKAGE FOR NPCC REVIVAL
2.38 (In %)
bond came in at 5.50% while the cut-
further rate cuts The Centre has approved a Rs 650 crore package for the
offs on the 8.24% 2018 bond and the
2.31 revival of National Projects Construction Corporation
new 30-year bond came in at 5.45%
(NPCC), involved in fencing of the Indo-Bangladesh border
The market will now look at funda- been anemic for October and No- and 6.83% respectively The new 30-
.
2.24 in the North East and developing irrigation infrastructure.
mental factors driving interest rates vember 2008 with growth rates of - year bond is likely to see good trad-
The capital of NPCC eroded fully a few years ago and in
after a period of intense volatility 0.4% and 2.4% respectively. IIP ing though the auction size was
2.17 December 2008, its net worth was a negative Rs 184 crore. As
based on technical factors. The ten- growth for April-November 2008 is small at Rs 3,000 crore.
per the plan, there would be no cash infusion but book
year benchmark government bond 3.9% against a growth rate of 9.2% Treasury bills, corporate bonds
adjustment — the government loan and interest would be
2.10
yield has swung from lows of 4.90% seen in the same period in 2007-08. and overnight index swaps
converted into equity capital, totalling Rs 650 crore.
2.17
2.17
2.30
2.30
2.36
2.32
to highs of 6.20% before closing the Export growth has come in nega- Treasury bills (T-bills) yields
2.03
last week at 5.60% levels. The cause tive for the last two months. Global were lower in the auction last week
5 ALLIES FOR INDIABULLS’ COMEX
Jan 9, 09 12 14
13 15 16
for the volatility was the govern- economic data is worsening and with the cut-off on the 91-day T-bill
HDFC Bank and Yes Bank are
ment surprising the markets with economists are forecasting a pro- auction held on January 14 coming
joining as equity partners for
Long and short
an additional borrowing of Rs longed period of recession. The RBI in at 4.58% against a cut-off of
the Indiabulls Financial
25,000 crore for the period Decem- will base its growth forecasts on do- 4.71% seen in the previous auction.
Services-MMTC commodity
ber-March 2009. mestic and global developments and The 364-day T-bill auction saw the
Overnight rates are likely to exchange, which will start
The market is not likely to see too is likely to bring down growth ex- cut-off coming in at 4.51% against a
remain close to reverse repo operations in the first quarter
many negative surprises in the pectations. cut-off of 4.78% seen in the previous
levels of 4%. of the next fiscal. The
coming weeks. Inflation has auction.
The OIS curve is expected to exchange, International
While the gov- come off sharply Corporate bonds yields fell on the
take its direction from govern- Multi-Commodity Exchange
ernment has with inflation as back of falling government bond
ment bond yield movements (IMX), will also have Indian
stated that it measured by the yields. Benchmark ten-year AAA
this week Potash Ltd and a small trading firm as the six promoters of
will stick to the WPI (Wholesale bond yields fell by 40 bps to 6.60% the country’s fourth national commodity bourse.
The new 30-year bond is likely
current borrow- Price Index) com- levels. Credit spreads rose as the
money review to see good trading though
BATELCO TO BUY 49% OF S TEL
ing schedule for ing in at 5.24% for market faced resistance at lower lev-
the auction size was small
Arjun Parthasarathy
this fiscal, the fi- the week ended els of yields. Benchmark ten-year Bahrain Telecommunications Co (Batelco), the nation’s
at Rs 3,000 crore
nance ministry January 3, 2009. AAA spreads closed up 20 bps at 280 largest phone company, and Dubai-based Millennium Private
officials have commented that Inflation had touched a peak of bps levels. Corporate bond yields Equity agreed to pay $225 million for a 49% stake in S Tel
they are not expecting any rate cuts 12.7% in August 2008. The current are expected to take its cue from Ltd. S Tel has licences to operate in six states.
in the Reserve Bank of India (RBI) trends in the WPI indicate that in- reverse repo/repo in the LAF levels. The five-year benchmark government bond yield movement
GODREJ EYES RS 500 CR ACQUISITION
policy review on the January 27, flation can potentially trend down to (Liquidity Adjustment Facility) bond, the 7.56% 2014 bond, closed this week.
2009. 0% levels in the next few months. auction of the RBI, was in surplus down 60 bps week-on-week at 5.65% Overnight Index Swaps (OIS) saw Godrej Consumer Products is looking at acquiring
Given that rate-cut expectations Commodity prices, including oil last week. Bids for reverse repo at levels. The long bond, the 7.95% 2032 the curve move down on the back of companies in the consumer care segment in India and
will die down in January, the mar- prices, have come off sharply while 5% touched Rs 39,000 crore. The bond, yield moved down 30 bps week- falling government bond yields. The abroad. GCPL has recently acquired international
ket will start positioning for incre- job losses and demand destruction CRR (Cash Reserve Ratio) cut of on-week to close at 6.90% levels. one-year OIS yield moved down by companies for Rs 100-200 crore. “What we could now look at
mental economic data which is ex- has destroyed any expectations of 0.5% will add Rs 20,000 crore of liq- The RBI conducted a MSS (Mar- 10 bps to close at 4.20% levels while is slightly bigger companies in the range of Rs 400-500 crore
pected be highly interest-rate posi- wage-price and producer-price in- uidity to the system. Overnight ket Stabilisation Scheme) buyback the five year OIS yield closed down and Indian companies also in the same range,” Rakesh
tive. flation. The government is expected rates are likely to remain close to last week. The RBI bought back Rs 10 bps at 4.90% levels. The one over Kumar Sinha, COO (marketing and operations), said.
The RBI is expected to revise to reduce fuel prices which will take reverse repo levels of 4%. 3,000 crore of 6.57% 2011 govern- five spread was unchanged at 70 bps
UTI AMC DEFERS PUBLIC OFFERING
down GDP growth forecast for fi- the WPI down further. Government bonds ment bond at a yield of 4.29%. levels. The OIS curve is expected to
nancial year 2009. The RBI has fore- The bleak economic scenario cou- Government bonds saw yields The RBI conducted Rs 10,000- take its direction from government UTI AMC is scouting for a strategic partner and has deferred
cast a GDP growth of 7.5% and the pled with falling inflation expecta- move down week-on-week as calm re- crore government bond auction last bond yield movements this week. its initial public offering indefinitely in the face of bearish
RBI governor has gone on record tions will prompt markets to factor turned to the markets. The bench- week. The auction was as per the market conditions. The company will rope in a strategic
saying that GDP growth will be re- in further rate cuts. The timing of mark ten-year bond yield closed the schedule given in the revised bor- Disclaimer: The author is senior partner by diluting up to 26% stake, chief marketing officer
vised downwards. The IIP (Index of rate cuts will become immaterial. week down 60 bps with the 8.24% rowing calendar for December- fund manager - fixed income, IDFC Jaideep Bhattacharya said. The four promoters — SBI, LIC,
Industrial Production) growth has Liquidity as measured by bids for
, 2018 bond closing the week at 5.60% March 2009. The bonds auctioned Mutual Fund. Views are personal. PNB and BoB — will each divest 6.5% of their holdings.
Continued from Page 21
The canary sings: da for discussion includes raising of additional was deferred on numerous occasions earlier, de- “Then people don’t know what amount will be pushed them into losses. And don’t forget, the oil
100 knew it long-term funds through further issuance of se- laying the submission by about an year from the utilised and whether the company will actually companies don’t belong to him: they belong to
curities and increase in authorised share capital original schedule, as the bidders requested for buy back. There are a lot of uncertainties,” said you, me and other investors and taxpayers.
“Prior to the meeting, Rama Krishna will pre- and consequential amendments in the company’s more time to evaluate the technical and financial Savla. Between April, 2003, and January, 2008, when
pare the balance sheet with the assistance of his Memorandum of Association. viability of the project. This is the reason why the open market pur- the Bombay Stock Exchange Sensex soared 620%,
team of 20 and bring it to me. I do not pay much Sources said Unitech has approached PSU Moreover, the power sector majors including chase route is more popular. the market value of oil companies rose 466%.
attention towards the details of that balance banks for fresh loans. “They are trying to raise Rs Tata Power, Essar Power, Indiabulls group and “The tender offer process of buying back That figure looks good only because the ONGC
sheet,” he had said. 900 crore fresh loans from Bank of India. But they Larsen & Toubro chose to stay away from bidding shares is not popular, because the stock market made big money Else the figure falls to 235%. If
.
Investigators are now examining his role in are still in talks, so there is no confirmation on for such a large project considering the weak eco- buy backs gives companies the flexibility. The the prices of India’s public sector oil companies
fudging the records of Satyam or at least helping whether this money will come,” said a source. nomic situation making it difficult for them to buyback can be done more opportunistically had risen at least as much as the Sensex (they
in carrying out the fraud. Unitech plans to pay off debt worth Rs 5,000 raise funds. when the stock is under pressure,” Savla said. should have risen more, since oil prices were
Another interesting aspect, in which Rama Kr- crore by March-end. Many companies apparently also chose not to “It is a corporate finance tool to improve the zooming), their collective market value should
ishna is suspected to have played a key role, is Analysts say that’s highly unlikely . participate in the project because of the poor site profitability ratios such as earnings per share, re- have been at least Rs 1,30,000 crore more that what
making bank statements available to the audi- On December 22, DNA Money had reported that selection for establishment of the plant, as they turn on equity and also a way to provide some it was. That’s the amount the finance minister
tors. According to sources, the bank statements Unitech has been able to sell off its Gurgaon Mar- are vary of prevailing uncertain conditions in the support to the stock price, as well an exit to pub- has looted from investors.
that were considered by the auditors for auditing iott Courtyard Hotel property to a high networth state regarding security and political establish- lic shareholders.” The big question: how are India’s finance min-
the books were also forged. These were made individual. The company was to intimate the ment. Experts said the catch in buybacks is that there isters different from the Rajus of the world?
available to the auditors by “someone” from bourses that week. But 26 days have passed and it The plant is estimated to cost roughly Rs 16,000- is no legal provision saying what a company has
ADAG holding in Swan
Satyam. still hasn’t given any intimation of the sale to the 18,000 crores to set up, while the electricity may to do after making a buy-back announcement.
Whenever the auditors called for the state- bourses. be sold at less than Rs 2 per unit, going by the A company can make an announcement and
comes under scrutiny
ments, a set used to be hand-delivered to them. Company sources say the deal is unlikely to prices quoted by corporations for earlier three not buy back. If it has declared a maximum price
Not suspecting any scam, the auditors took these take place now as the investor who had shown in- UMPPs. of Rs 600, it may buy back some shares at Rs 200.
at face value, as original statements issued by terest has backed off. India has a target to add 78,577 megawatt of There is no compulsion. Also, the cost associat- In addition, Reliance Telecom held 100% pref-
banks. That brings the focus back on Unitech’s finan- electricity generation capacity in the 11th Plan ed with announcing a buyback is minimal, erential shares in the company. As Reliance al-
Banks have now denied sending such state- cial situation. period ending March 2012. Nine UMPPs with a ca- though it is a time-consuming process which may ready operated a pan-India mobile phone service,
ments. “The question we need to answer is about Unitech earlier said that it had finalised a deal pacity to produce 4,000 mw or more electricity are take 6 months from conception to the day the of- the issue of ‘substantial equity’ cropped up over
the people handling the bank accounts of Satyam. for sale of its Saket commercial property and the being developed to fulfill the country’s rising en- fer is made. its holding in Swan.
Someone used to fake the statements and ensure Gurgaon hotel property . ergy requirement. The proposal has to go through board an EGM, Thereafter in December 2007, Swan told DoT
that these reached the auditors. Rama Krishna Analysts say there has been little improvement Three such UMPPs have already been awarded Sebi and stock exchanges for approvals. that Reliance Telecom had divested its entire mi-
would know about this,” the police source said. in the company’s situation except for the fact that on the basis of competitive bidding. “Sebi may be considering amendments to the nority stake (9.8%) and also its holding of the
public sector banks have refinanced loans worth The contract for Mundra UMPP in Gujarat has buy back regulations making it mandatory for preference shares, the DoT letter to the Ministry
Taj Group checks in at Rs 800 crore. been given to Tata Power while Sasan contract in the company to spend the money on buy-backs,” of Corporate Affairs states. “Consequently, Re-
Merrill Lynch analysts Amit Agarwal and Madhya Pradesh and Krishnapatnam contract in said an investment banker who wished to remain liance Telecom has no interest in the company ,”
Sea Rock Hotel Gagan Agarwal wrote in a report dated Decem- Andhra Pradesh have been awarded to Reliance anonymous. the letter added.
ber 2 that there were increasing worries of a Power Limited, a part of Reliance Anil Dhirub- Though buybacks are not very lucrative, mer- The new shareholding pattern of Swan showed
With the arrangement with Taj, the LoI be- bankruptcy arising from a stretched balance hai Ambani Group. chant bankers may be willing to take up buyback that Tiger Traders continued to hold 90.10% eq-
tween Claridges Group and Mandarin Oriental sheet amidst slowing sales due to the worsening offers during market meltdowns like the current uity in Swan, while Delphi Investments Ltd (a for-
Buyback offers roiling
logically stands terminated. This also means economy and weakness in the IT/ITES sector. one, as they are jobless, anyway. Buybacks also eign company) had 9.8%. The preferential shares
that Mandarin’s attempts to re-enter the Indian “The risks have increased due to uncertainties re- may help the merchant banker to maintain rela- earlier held by Reliance Telecom were now with
shares
hospitality space have failed again. Until 2001, garding the telecom investments and the capex tionships with clients. Dynamix Balwas Infrastructure Pvt Ltd.
the international hotel chain had a presence in requirements in the medium term,” the analysts “The markets have become smarter and do not The Corporate Affairs Ministry’s probe into
India through its management and marketing wrote, downgrading the Unitech stock. react to a high buy-back price. However, there the issue is likely to focus on who Tiger Traders
association with Indian Hotels & Health Resorts’ Analysts say the company has been planting may be a risk of some small investors making is, to establish whether or not there is a violation
luxury spa resort Ananda in the Himalayas. stories in the market to generate curiosity among purchases in anticipation of selling at higher of the ‘substantial equity’ guidelines of the DoT.
Claridges Group officials, including Leitgeb, investors by declaring final stage negotiations for price,” said Savla. The DoT papers offer a glimpse into who Tiger
were unavailable for comment. monetising its assets. Traders (subsequently Tiger Trustees) is.
FM’s cookbook rivals
The property which is now Taj Land’s End Unitech had informed the Bombay Stock ex- According to these papers submitted to the
was acquired in 2002 when the Taj Group teamed change that it would issue fresh securities to raise Ministry of Corporate Affairs, Tiger Trustees
Ramalinga Raju’s
up with ICICI Trustee Services (I-Ventures) to Rs 5,000 crore. But, analysts feel the company is was incorporated in March 2006 as Tiger Traders
pick up the then Regent Hotel from the Lokhand- out to sell its promoters’ stake. Pvt Ltd with registered office at Reliance Energy
wala Group for Rs 452 crore. Post the acquisition, The way things stand, Unitech promoters, But he was buying votes without paying for it Centre in Mumbai. The shareholders of Tiger
the hotel was rebranded Taj Land’s End. The Ramesh Chandra and family, have to sell more (farm loan waivers, oil price subsidies, et al). It’s Traders are shown as Swan Infonet (formerly
IHCL management will soon be beefing up the than 25% stake to bring in sustainable liquidity . not very different from Raju keeping share prices Parrot Consultants) with 50% holding and Swan
capacity at the hotel, adding 130-odd rooms to the The caveat: they would have to make an open of- Reliance Infrastructure has purchased its en- high without earning it. Advisory Services (formerly Zebra Consultants)
existing property to take the total room invento- fer if they sell more than 14.59%. tire buyback quota of 87.6 lakh shares at an av- We can sometimes assign a nobler purpose to also with 50%.
ry to 500. Analysts, though, concede that the stock could erage price of Rs 920, 42% lower than the maxi- government spending - after all they are elected The directors of Tiger Trustees on incorpora-
rise to Rs 80-90 if the promoters sold more than mum buyback price of Rs 1,600. It used up only Rs to serve the poor —- but not always. When oil tion included Ashish Karyekar and Paresh
It’s death or rollover of 15% and announced an open offer. That, some 806 crore, as against the Rs 2,000 crore earmarked costs $130-150 a barrel (which is what it cost Rathod, recorded as ADAG group employees. The
feel, would be fair valuation. for the purpose. around mid-2008), are you doing the country a directors of Swan Infonet on incorporation were
debt for Unitech today pooja_s@dnaindia.net DLF repurchased nearly 40% of its buyback service by forcing oil companies to sell it for the also Karyekar and Rathod.
quota using just 4% of the money earmarked. equivalent of $60? He made ordinary people over- Communications minister A Raja has been un-
Tilaiya bids delayed
A fund manager at one of the top five India-spe- SMC data say DLF bought back over 21.4 lakh consume a precious commodity by artificially der fire for issuing several telecom licences in
cific international realty funds said on the con- shares spending just Rs 51 crore. Its average price pricing it low. In other words, he was indulging in 2008 on a first-come-first-serve basis in alleged vi-
by a fortnight
dition of anonymity that the funds have no choice of acquisition works out to just Rs 238, or 60% activities detrimental to the country’s long-term olation of the proposals of the Telecom Regula-
but to roll over the debt even though Unitech lesser than the maximum buyback price of Rs interests. When we don’t produce that much oil, tory Authority of India (Trai).
started defaulting in FMPs long back. Executives at the Power Finance Corporation, 600. should we be pricing it low or high? We were not Even the Central Vigilance Commission (CVC)
“The valuation of the company’s land bank has the nodal agency selected by the government to All the current buybacks are happening at a even pricing it at cost. And all this to let the fi- is scrutinising the role of the communications
also fallen considerably and nobody wants to implement the UMPPs, declined to comment. discount to the maximum offer price. nance minister claim a better budget balance! ministry on the issue.
touch the company because of its gearing. If the Earlier, in December last year, five companies While average discount stands at 36%, the Now let’s consider plain robbery We presume
. Swan Telecom was among the companies
financial institutions start selling the assets, they —- Jindal Steel & Power, Lanco Infratech, state- range of discount varies from 0.46% (India Info- Raju used a part of Satyam’s cash for his own pur- which were issued telecom licence last year. Swan
would be left with land chunks on which it would run NTPC, Reliance Power and Sterlite Industries line) to 67% (R Systems International). poses. In short, he used money that belonged to Telecom recently announced a deal where Eti-
be difficult to raise private equity for develop- —- had submitted the technical bids detailing Mehul Savla, chief executive officer of Ripple shareholders. Chidambaram did no less. How did salat is going to acquire 45% of this company for
ment of projects,” the fund manager said. their technical capabilities to carry out the proj- Equity, a merchant banking firm, said after a he make his budget look better than it was? The around $900 million. The valuation of this com-
Incidentally an extraordinary general meeting
, ect. buyback announcement, there is some movement example of public sector oil companies is clear. pany is $2 billion.
of the Unitech board will be held today The agen-
. The deadline for submitting the technical bids in the share price initially. By forcikng them to price oil below cost, he m_nivedita@dnaindia.net