NEW DELHI: Life Insurance Corporation of India, the country’s largest insurer, will consider increasing its holding in companies in which the government plans to sell shares this year, possibly up to the 15% limit allowed.
LIC, which is also the country’s largest investor, is expected to invest about Rs 55,000 crore in the equity markets this financial year, up from about Rs 51,000 crore in 2013-14. The insurer will take a call on increasing its stake, depending on each issue, a senior LIC official told ET.
Finance Minister Arun Jaitley has proposed raising a recordRs 58,425 crore from the sale of government stake in companies such as Oil & Natural Gas Corporation, Steel Authority of India and Coal India. The key BSE Sensex index has gained 27% in 2014 amid expectations the Narendra Modi government will step up reforms and revive economic growth.
“We believe that most PSU stocks at present are undervalued. Companies such as ONGC, Sail, Coal India have good fundamentals and therefore we may look to touch the equity ceiling in these firms,” he said, adding that the move will support the government’s disinvestment programme.
The government has already announced the sale of a 5% stake, which is valued at Rs 16,760 crore at the current market price, in ONGC. The company’s shares fell 0.75% to Rs 391.80 at the close on the BSE on Tuesday.
“Our internal guidance is that a company such as ONGC will trade at around Rs 700 in the next one year or so. As an insurance firm, we are long-term players and see good value in a stock such as this,” the official said. ONGC’s profitability is expected to rise after the government freed diesel prices from state control, reducing the subsidy burden that the exploration and production company had to bear.
In 2011-12, LIC picked up over 80% of the shares offered by the government in a sale at an average ofRs 304 per share. The government garnered about Rs 12,750 crore from the sale of the 5% stake.
“We have since sold a part of our ONGC stake and made a profit of over Rs 7,000 crore,” the LIC official said.The government held a 68.94% stake in ONGC at the end of September. LIC had a 7.7% stake in ONGC, down from 7.82% a year ago. It has a 2.33% holding in Coal India and over 8% in SAIL.
The government plans to divest a 10% stake in Coal India, where its shareholding is 89.65%.
Jaitley proposed to raise Rs 43,425 crore from stake sales in state-owned companies and Rs 15,000 crore from firms where the government has a minority stake. It has not been able to meet disinvestment targets set in the past 10 years.
The government mobilised about Rs 15,820 crore from share sales against a target of Rs 40,000 crore in the previous financial year and Rs 23,957 crore against a goal of Rs 30,000 crore in 2012-13, according to the website of the Department of Disinvestment.
(Source: The Economic Times, October 29, 2014)
CABINET MAY TAKE UP PLAN TO EASE FDI IN CONSTRUCTION
NEW DELHI: The union cabinet is likely to consider on Wednesday a proposal to liberalise foreign direct investment in construction sector.
The department of industrial policy and promotion (DIPP) has proposed substantial easing of norms for affordable housing and the 100 smart cities envisaged by the new government that took charge in May.
The proposal, if approved, will also help infuse more funds into the debt burdened sector and facilitate faster completion of projects.
“FDI in construction note is with the cabinet for approval and will likely be considered on Wednesday. Comments from various ministries and departments have been incorporated,“ said a government official.
Under current rules, 100% FDI is allowed through the automatic route in development of townships, housing and built-up infrastructure, subject to stringent conditions and a three-year lock-in. The norms mandate minimum capitalisation of $10 million for wholly-owned subsidiaries and $5 million for joint ventures with Indian partners.
Developers will be exempt from restrictions in size, minimum capitalisation and exit, if they commit 30% of project cost to affordable housing. The sector attracted $1.2 billion in FDI in 2013-14, down 8% from the previous fiscal.
DIPP, the nodal agency for FDI, has proposed relaxation in norms related to built-up area, capitalisation and lock-in period. It has proposed that the minimum built-up area be cut to 20,000 sq metres from 50,000 sq metres while the minimum capitalisation be halved to $5 million from $10 million and from $5 million to $2.5 million for joint ventures with Indian partners.
Minimum built-up area in case of serviced housing plots is proposed to be cut to 5 hectares from 10 hectares and the minimum lock-in period of three years after the completion of the project is proposed to be dropped. The government hopes the easier rules will also help faster completion of projects delayed by a squeeze on funds due to elevated debt levels.
If the proposal is accepted, investors are likely to be able to exit projects on receipt of occupancy and or completion certificates issued by the competent local authority or after Foreign Investment Promotion Board’s nod.
(Source: The Economic Times, October 29, 2014)
INDIA RELIES ON CHINA FOR 90 PER CENT OF DRUG RAW MATERIALS
NEW DELHI: Imagine a situation where an Indian soldier’s medical kit is running out of essential drugs on a battle front. This may sound like a figment of imagination, but given India’s acute dependence on China for key ingredients (active pharma ingredients) for several essential drugs including several antibiotics, the prospect of such a scenario isn’t all that remote. India depends heavily on imports — over 90% — from China for many key raw materials (mostly intermediates and some active pharma ingredients) that go into the making of at least 15-odd essential drugs, reckons a Boston Consulting Group (BCG) and Confederation of Indian Industry (CII) report reviewed by ET.
“Any deterioration in relationship with China can potentially result in severe shortages in the supply of essential drugs to the country. Additionally, China could easily increase prices of some of these drugs where it enjoys virtual monopoly,” said Bart Janssens, partner, BCG.
These drugs include the most commonly used painkiller such as paracetamol, Aspirin; antibiotics such as Amoxicillin and Ampicillin, Cephalexin, Cefaclor, Ciprofloxacin, Ofloxacin, Levofloxacin; first line diabetes drug Metformin; antacid Ranitidine.
There are no domestic producers left for many of these such as Penicillin-G, and its derivative 6-Aminopenicillanic acid, or 6-APA, as it is commonly known, making the country entirely dependent on imports for key intermediates used in many essential antibiotics, including semi-synthetic penicillins and semi-synthetic cephalosporins.
The report which the CII and BCG have shared with the government * underlines the risks of such over-dependence on China for critical raw material and commonly used drugs. Any supply risk, in terms of shortage of these advanced intermediates, would endanger the production of APIs and bring the manufacturing of critical drugs to a halt, putting the health of a large proportion of the * total population at risk, he added.
A glimpse of just what could go wrong was evident during Beijing Olympics 2008, when China closed down many of its API plants to cut environmental pollution. “This led to an immediate price rise of around 20% in some bulk drugs which were being sourced solely from China. We had no alternative since China has a near monopoly in several APIs,” said Ramesh Adige, a pharma expert who was formerly an executive director with Ranbaxy Labs.
Leading Indian drug makers 70% of their total raw material (mainly intermediates) requirements from abroad. Total imports of APIs and advanced intermediates have grown steadily at a compound annual growth rate (CAGR) of 18% over the last ten years, from $800 million in 2004 to $3.4 billion at present. China alone accounts for 58 of these imports by value. In volume terms, China’s share of imports stands at about 80%. Government officials told ET that they are aware of the situation. The pharma department, which had recently held a meeting with industry stakeholders, may prepare a ‘critical API and intermediate list’. Also, an expert group had been set up separately by the previous government to study the matter.
“To start with, the APIs and key intermediates that are needed for making drugs of strategic importance should be given priority when government decides to create incentives to encourage API manufacturing in India,” said Aditya Berlia of Apeejay Stya and Svran Group, whose pharma vertical includes companies that make API as well as formulations.
Also, when the incentive structure of APIs is prepared, cause and effect on the entire pharma and healthcare ecosystem should be considered holistically, Berlia who has studied the matter added. For instance, any knee-jerk reaction such as anti-dumping duties without creating capacities at home and back-up plans could back-fire, warn experts.
“Matching benefits which China gives for export of APIs such as tax holidays, low interest rate loans, subsidy for effluent treatment plants and ensuring production facilities could be the first steps,” Adige said. Creating API parks can also help, he adds, so that costs can be shared on effluent treatment plants, power plants, and other common infrastructure. Across fermentation and chemical synthesis-based products (groups where the dependence is more pronounced), the report estimates China to be 15 to 40% more cost competitive.
(Source: The Economic Times, October 29, 2014)
GOVT PLANS TO CUT PUBLIC SECTOR BANKS STAKE TO 51 PER CENT
NEW DELHI: In a bid to take advantage of the bullish stock market sentiment, the finance ministry has kicked off the exercise to cut government stake in public sector banks to 51% and enable them to raise fresh capital to meet their growth requirements.
Sources told TOI that the ministry has moved a cabinet note as the government is keen that banks are well capitalized to meet the funding requirement. With government finances already stretched, the BJP administration has decided that Centre’s holding be cut to 51% against the UPA-decided level of 58%. Through this move banks will be able to expand their equity base by issuing fresh shares to the public.
While all state-run banks are well above the regulatory requirement of 9% capital adequacy ratio, several of them, led by State Bank of India, the country’s largest lender with a quarter of the pie, will need more equity to meet the higher fund requirement of corporate and retail borrowers in coming years. A higher equity base will enable banks to issue more bonds and maintain capital adequacy ratio of around 12%.
Data available on the BSE website showed that government holding in at least six state-run banks is under 60% with at least four banks having capital adequacy ratio of below 12%.
In his maiden Budget speech, finance minister Arun Jaitley had announced the government’s intention to cut its stake to 51%, which will ensure that the public sector character is maintained. The government decided to reduce the floor on its holding as it could only spare a little over Rs 11,000 crore for recapitalizing public sector banks. The rest of the funds, it said, need to be raised from the market.
The government has estimated that state-owned banks will need around Rs 2.4 lakh crore till 2018, which they may not be able to raise from the government. It has asked banks to sell non-core assets and initiate several other measures to meet the funding needs but experts believe that these options will have limited impact and the only solution is for the government to reduce its holding below 50%.
The Atal Behari Vajpayee government had proposed to reduce government holding in state-run banks to 33% but the amendment could not be passed in Parliament as Congress, which was the main Opposition party, blocked the move.
(Source: The Times of India, October 29, 2014)
POWER MINISTRY MOOTS FUEL PLAN TO KEEP LIGHTS ON
NEW DELHI: Private-sector power plants with a combined capacity of over 1 lakh MW, including plants of 36,500 MW that have been deprived of their captive coal blocks thanks to a recent Supreme Court verdict will get “firm coal linkage” if the Cabinet approves a plan put forth by the power ministry.
Pooling of domestic (Coal India) and imported coal will be done to ensure these linkages; the mechanism will be available to all plants commissioned between 2009 and 2017 that have a fuel supply agreement (FSA) or a letter of agreement (LOA) with Coal India.
Besides, linkages helped by pooling will be assured to the all power plants that have now lost their captive coal blocks but are going on stream latest by March 2017, the end of current Five-year Plan, in case the firms concerned fail to regain the blocks in auction. The beneficiaries of the move include the Adani Group, Tata Group, KSK Energy, Reliance Power, CESC, DB Power and Monnet Ispat, apart from power projects of the Jindal, Essar, GMR and GVK groups (see table).
According to the power ministry’s proposal, in the case of power plants under the regulated (cost-plus) tariff mechanism — some 30% of the total capacity to benefit — Coal India will supply coal at prices that have factored in the pooling to meet 50% of the fuel needs of the plants to run them at a plant load factor of 85%.
As for the remaining projects that have either clinched power purchase agreements with buyers based on competitive bidding to determine tariffs or are slated to do so in future, CIL will fulfil the linkage obligation by stepping up the e-auction process for pooled coal. Of course, the cost of e-auction coal could be higher given the paucity of the fuel (currently, only 7% of Coal India’s output is sold through e-auction). Fuel linkage for plants that have lost captive coal blocks will be enough for 90% capacity utilisation.
The power ministry, sources said, tweaked an earlier proposal to give some kind of assured supply of coal for an additional 20,000 MW power capacity that have only signed MoUs with CIL and are without any FSA/LOA support.
Given the finance ministry’s objections to the proposal, FSA holders will continue to get priority in supply of coal over others who will now have to be content with a non-binding CIL initiative to supply coal to them on “best-effort basis”. Limiting the benefit of pooling to FSA holders and those plants that have lost their captive coal blocks could hit several power units including Bajaj Hindusthan’s 1,980 MW Lalitpur project, GMR Energy’s 1,370 MW Chhattisgarh project, Adani Power’s 1,320 MW Tiroda unit and Essar Power’s 1,200 MW Singrauli plant.
As coal pooling is proposed to be confined to post-2009 plants, in an an optimistic scenario, assuming enhanced local production of the fuel, the increase in cost of power generation for the units concerned would be an average of 74 paise per unit for 2014-15, 44 paise for 2015-16 and just 5 paise for 2016-17.
The plan to give coal linkage to units with 36,500 MW of capacity which have to part with their captive coal blocks mitigates the risks to the huge investments made in these plants. While they could lose out in the proposed auction process for reallocation of the cancelled blocks, at least they can get coal from Coal India under the pooling mechanism.
FE had reported earlier that while the new winners of the 74 blocks (including 42 producing ones and 32 about to start production) to be auctioned in the first phase will be allowed to swap the coal produced from these blocks among themselves to achieve operational efficiency. The swap facility, restricted to same end-use plants, will give relief to current holders of some of these blocks as it could somewhat offset the absence of right of first refusal for the blocks they had invested in.
The ordinance issued last week in this regard also states that companies with multiple end-use plants in the same category for instance, a company with two power plants in two different locations can divert coal to the plant not associated with the block.
(Source: The Financial Express, October 29, 2014)