At Capitalmind Premium, we have a very active Slack channel where we discuss a lot of interesting topics. In there, a number of interesting links come our way. Here’s the most interesting of such links shared by our members in recent days.
Indian Banks are Ending Their Love Affair with Government Bonds
Until recently, whenever the government issued bonds, banks would immediately lap them up. But not anymore. In FY19, Indian banks invested just Rs. 61,900 crores in government bonds, a growth rate of 1.9% over last year. This is actually a 35-year low for these investments. Meanwhile, bank lending to companies and individuals grew 13.2% in FY19, against a growth rate of 10.3% in FY18, indicating that banks are ready to explore alternative investments options. Link
DHFL Mutual Fund Merges Two Crisis-ridden Mutual Funds with Other Funds
The DHFL crisis has hit the DHFL Pramerica Mutual Fund hard. Two of its funds, the floating rate fund and medium-term fund which held DHFL papers, had to endure massive redemption pressure, which reduced their assets under management drastically. In the end, the funds which once boasted of an AUM of Rs. 640 crores and Rs. 437 crores respectively, were left with just Rs. 13 crores and Rs. 34 crores. Since it was no longer feasible to keep the funds open, DHFL mutual fund decided to merge them with two other similar funds in its kitty. DHFL has allowed the existing investors of the two larger funds to exit the funds between May 24th and June 22nd if they wish, without paying exit fees. Link
Reliance Capital to Divest Family Jewels to Par Debt
Reliance Capital has a big stake in Reliance Broadcast Network, which runs the Big FM brand of radio stations. But with Reliance Capital currently reeling under a huge debt burden, it was left with no choice but to monetize its assets (like RBNL), and use the proceeds to reduce its debt. Reliance Capital will reportedly sell RBNL to Jagaran Prakashan’s Music Broadcast, which owns Radio City, for Rs. 1050 crores. Under the deal, 40 Big FM radio stations will be transferred to Music Broadcast, while the remaining 18 will be sold to other buyers. The deal will reportedly fetch Reliance Capital Rs. 1200 crores, helping it par off a part of its Rs. 12000 crore debt. Link
RBI Reads the Riot Act to NBFC in the Form of New Liquidity Norms
On 24th May, the RBI released a circular in which it ordered all ‘non-deposit’ taking non-banking financial companies (NBFCs) that had Rs. 5000 crores or more in assets and all ‘deposit taking’ NBFCs, to set up a liquidity buffer, under a term called ‘liquidity coverage ratio’. According to the RBI, the LCR will ensure that NBFCs have the capacity to endure liquidity stress for a minimum of 30 days. The diktat comes after NBFCs were unable to procure funding for seven to eight months in the last year, the outcome of the IL&FS debt default. The LCR requirement will become binding from 1st April, 2020. Link
Vadodara Central GST & Customs Arrests Manpasand Beverages Top Officials for Invoice Fraud
Manpasand Beverages is never far away from the limelight. Last year, the company was in the news after its auditors Deloitte Haskins & Co. resigned citing the company’s failure to make available crucial information about its finances for FY18-19 to the auditor. This time, the company is in the news because its M.D, his brother and the company’s CFO were arrested by Central GST & Customs for committing invoice fraud using fake invoices. The company apparently ran 30 small units across India to generate these fake invoices, to claim against input credit. The Central GST & Customs dept estimates that the accused evaded and diverted tax of Rs. 60 crore using this method. Link
UK Court Orders Vijay Mallya to Return Diageo USD 135 Million
A UK court has ordered former Indian liquor tycoon, Vijay Mallya to repay Diageo USD 135 million, which the British drink maker owes to Standard Chartered Bank. The case goes back to when Diageo purportedly stood guarantee for a loan that Standard Chartered refinanced from ICICI bank, on behalf of Siddharth Mallya and a Mallya family trust company called Watson. Vijay Mallya had placed some USL shares as collateral for the loans and Diageo had assumed that it would take the shares in lieu of the loan amount. Unfortunately for Vijay Mallya, the shares are stuck in litigation in India’s Debt Recovery Tribunal. Not included in the award is a separate USD 40 million that Diageo also guaranteed to Standard Chartered Bank, on behalf of Vijay Mallya when he stepped down as USL chairman. Link
Shocker: UK PM Theresa May Resigns Citing Inability to Deliver on Brexit
Theresa May was only the second female Prime Minister in the U.K’s history. But her moment in the sun came ended in an almost anti-climatic fashion recently after she announced her resignation from the post. She cited her inability to push through a Brexit bill in Parliament, as the reason for her resigning. Theresa May had been trying hard to convince her Conservative Party MPs to vote for a Brexit plan. She had pushed the Brexit bill twice in parliament, but without success. Just before her final attempt, she even promised a second Brexit referendum to her opponents, if they helped her pass the bill in Parliament, but she failed again. When all her efforts came to naught, she felt she had no choice but to resign. Link
Indian Copper and Aluminium Finished Goods Makers are Wary of RCEP
The Regional Comprehensive Economic Partnership is a proposed free-trade agreement between the 10 ASEAN countries and six Asia Pacific countries, including India. But the pact is not without its dissidents in India, who are afraid that the deal will flood Indian markets with cheap finished goods. One of those dissenting are India’s copper and aluminium finished goods makers. To be clear, they are all for abolishing the import duty on copper and aluminium ore because India doesn’t have much of these but they don’t want the deal to include copper and aluminium finished goods, like refined metal, for which India has the capacity. Link
Public Sector Firms Struggle for Funds as Government Dithers on Releasing Funds
Borrowing costs in India have risen sharply across the board due to risk aversion and a liquidity crisis. Victims of this shortage of funds include public sector companies like REC, PFC, and IRCTC. Since the government is not forthcoming with funds, public sector companies have been forced to resort to alternative options, like the bond market. Ironically, the sovereign backing and the next-to-no chance of PSUs defaulting on a debt hasn’t helped them negotiate a lower rate of interest. Link
Lenders Hold on IL&FS Group Companies’ Funds Citing Default by Parent
The Ministry of Corporate Affairs has reported to the NCLAT that several banks who have lent to IL&FS are refusing to release the funds that several IL&FS group companies had deposited with the banks, citing defaults in loan repayments by the parent. This is contrary to an NCLAT order which had directed the banks to release the funds to the subsidiaries as and when necessary, so they can maintain their status as ‘going concerns’. Meanwhile, the government has divided the list of IL&FS subsidiaries into green, amber and red, depending on their solvency status, so it becomes easier to deal with them. Link
Trumped! U.S Lawmakers Introduce Legislation to Remove Huawei from American Networks
U.S President Donald Trump is known for unorthodox style of governance. The latest target of his ire are two Chinese telecom equipment makers, Huawei and ZTE, who he has accused of spying for China, through their U.S sold equipment. Now, a group of bipartisan U.S lawmakers have gone one step further and have brought in a bill to reimburse American companies with $700 million, if they agree to replace their Huawei and ZTE equipment. The bill also blocks the use of Huawei and ZTE equipment in next-gen 5G networks. Many U.S tech companies have already severed their ties with Huawei, including Google. Link
British Steel Enters Liquidation After Last Minute Effort to Save Company Fails
When Greybull Capital LLP purchased two giant blast furnaces in Scunthorpe from India’s Tata Steel in 2016 and renamed the new concern as British Steel after a once famous U.K steel company, many people hoped that British-made steel would make a comeback. But those hopes were surely dashed when the new British Steel was dragged to liquidation recently. This occurred after the company’s last hope, the U.K government, refused to provide fresh funds. Link
Snapdeal to Acquire Rival Shopclues for $250 Million
In yet another likely consolidation in the Indian e-commerce space, Snapdeal has expressed its intent to acquire its rival Shopclues for $250 million. This will be the first acquisition for Snapdeal, after the company re-calibrated its business to focus on unbranded products. Both Snapdeal and Shopclues have a common investor in Nexus Venture Partners, which initiated the deal. Post the deal, Shopclues investors will get a 10% stake in the new entity, while Shopclues’ founders’ will exit. Both Snapdeal and Shopclues have been going through troubled times. The former was even in talks to be acquired by Flipkart in 2017, but that deal fell through. Link
SEBI Allows Portfolio Management Schemes to Trade in Commodity Derivatives
Portfolio Management Schemes (PMS) are wealth management services targeted at high-networth individuals. Until now, mutual funds and PMS couldn’t trade in commodity derivatives. Recently, SEBI removed that restriction. But there are some caveats. For example, PMS have to get their clients to sign an agreement before engaging in any commodity derivatives trading. A custodian is also a must. If a PMS takes physical delivery of a commodity, it has to dispose of it as soon as possible and within the time frame agreed between it and the client. Link
