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#Linkfest – Berkshire Hathaway Bites into ICICI Prudential, IL&FS Fraudsters, China-U.S Trade Standoff, IFC Invests into Manappuram, and more

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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.

Fuel Retailing May be Opened to Non-oil Companies Soon

The government of India is said to be mulling opening the fuel retailing space to non-oil companies soon. Currently, only a few companies (on the condition that they fulfill strict guidelines) are allowed to open fuel retail outlets. A few companies like Trafigura, Torrent, and Total have already shown interest in opening fuel retail outlets in India. The move comes after existing oil production/marketing companies failed to invest in the segment, even after the government deregulated fuel prices. Link

Berkshire Hathaway Bites Into ICICI Prudential Life Insurance

Zee Business has reported that Warren Buffet-led Berkshire Hathaway buying a 14% stake in ICICI Prudential Life Insurance company for Rs. 9000 crore. Warren Buffet, who leads Berkshire Hathaway, is known for his moat-style of investing, where he looks for companies that have maintained their competitive advantage for a long periods of time. ICICI Prudential Life Insurance company is one of the largest private insurance players in India, with an AUM of Rs. 1,60,410 crores. Link

IL&FS Fraudsters Sweat as SFIO Files Chargesheet in IL&FS Default Case

The Serious Fraud Investigation Unit has filed its first chargesheet in the IL&FS default case. The charge sheet contains the names of many former executives of the IL&FS Group. The names of individuals/companies to which the group had lent money have also been included. The SFIO has also dinged the company’s auditors, Deloitte Haskins & Sells and BSR Co. and LLP, charging them with colluding with IL&FS officials to hide the fraud. The charge sheet reveals that many of the companies to whom IL&FS had extended loans had not been servicing their debt. Instead of reporting the same, IL&FS officials funded promoter companies so they could repay the interest and principal on the loans. Link

Clearing Houses Scramble To Follow SEBI Diktat on Interoperability Network

Recently, SEBI issued a circular that said clearing corporations (they handle your trade settlements on stock exchanges) should enable interoperability. It basically meant, customers will be free to choose whichever clearing house they want, to handle their trade settlements. Currently, most trade settlements occur through clearing houses owned by stock exchanges. However, SEBI has been forced to extend the deadline by a month because many clearing corporations are still working on some aspects of the interoperability framework. Link

Real Estate Builders May Get a Reprieve, as Government Readies a Slew of Benefits

The past few years have seen investments into India shrink from 36% of the GDP to 29%. One of the reasons for this is the recession in the real estate industry. The government has finally woken up to the plight of real estate players, and has readied a slew of benefits to reinvigorate the sector. One of the benefits on the board is a 10-year tax holiday to builders on rental income profits. The Finance ministry is deliberating the issue with representatives from the real estate industry and might accommodate the suggestions in the upcoming budget. Link

Winding Up Proceedings Won’t Stop Action Under RERA, says Rajasthan High Court

The Rajasthan High Court has ruled that a winding up petition against an insolvent real estate company won’t stop proceedings on the same company under RERA. The case pertains to a decision of the Delhi High Court which had appointed a liquidator for a real estate company even as RERA proceedings against the company were underway. The real estate company had cited Section 279 of the Companies act which says no suits or orders can be passed against a company if it is undergoing winding up proceedings. The court went as far as to say, RERA proceedings will continue even after winding up orders are passed. Link

China Says ‘Two Can Play this Game’ as the Country Braces for U.S Tariffs Hikes

The U.S has imposed heavy tariffs on Chinese imports worth $300 billion. The Chinese have threatened to counter this with their own set of tariff hikes, including on rare earth minerals. Chinese has a bulk of the world’s supply of rare earth minerals that are critical to many electronic items, including cell phones and electric batteries. Since the U.S depends on imports for 80% of its rare earth mineral requirements, China’s threats to restrict export of the minerals to the U.S has the potential to do serious harm. Link

IFC Taps India’s Gold Loan Market with $35 million Investment in Manappuram Finance

According to the World Gold Council, Indians hold about 23,000 tonnes of gold, which has an estimated value of $1 trillion. But the market for gold loans with India’s banks and NBFCs is just $19.6 billions, leaving a lot of room for high interest usury. Sensing an opportunity, the International Finance Corporation has said it is investing $35 million in Manappuram Finance. It will help Manappuram to address a critical need of households seeking formal sources of credit to take gold loans. Link

Drug Stockists in India May Have to Swallow Bitter Pill of Capped Trade Margins Soon

After capping the price of cancer drugs, India’s drug pricing regulator is mulling a cap on trade margins. Trade margin is the difference between the price that a drug manufacturer sells a medicine to a stock and the price at which the stockist sells the medicine to a patient. Currently, there is no cap on trade margins, which can be as high as 43% in the case of cancer drugs. The proposal is said to be part of the NDA government’s agenda for the first 100 days. Link

Yes Bank Might Bid Goodbye to Asset Management Business

Recently, Yes Bank was dinged by the RBI for hiding the true extent of its non-performing assets. It led to a sequence of events, culminating in the bank’s MD and CEO Rana Kapoor being ousted from the position. Under new CEO Ravneet Gill, Yes Bank has embarked on a series of moves to redeem the bank’s reputation. Now, there are rumors that the bank is looking to sell off its asset management unit, Yes Asset Management. The unit currently has Rs. 2000 crores of assets under management. However, Yes Bank has denied any such move. Link

RBI Plans to Set up a Stop Exchange for Currency to Aid Retail Customers

Retail customers who want to buy or sell foreign currencies are in for good news. There is news that the RBI is working with the Clearing Corporation of India to develop a spot trading platform for currencies, targeted towards retail customers. The CCI is already operating a spot trading platform for USD/Indian rupees, but it is reserved for banks. All the CCI has to do is extend the platform to retail customers. Extending the facility to retail customers will lead to better clarity on pricing, while reducing costs. Link

Three PSUs Join Hands to Acquire Rare Mineral Assets Abroad

India has rich deposits of minerals like iron ore and coal, but it is not so blessed when it comes to rare minerals like lithium and cobalt. To secure India’s access to these rare minerals, three Indian public sector units – Hindustan Copper Ltd., Mineral Exploration Corporation Ltd., and National Aluminium Company Ltd. have come together to form a joint venture to acquire such assets abroad. The joint venture which has a proposed equity of Rs. 100 crore, has already looked at mines in countries like Bolivia, Peru, and Chile, for investment. Rare minerals like Cobalt and Lithium are an important component of electronic goods. Link

New Jagan Government in A.P Cancels Infra Projects Awarded by Old Government

The new Andhra Pradesh government under CM Jaganmohan Reddy has cancelled several infrastructure projects awarded by its predecessor government, in the state. The cancelled projects had a ticket size of Rs. 30,000 crores, and were related to irrigation, water supply, airport construction, and more. Companies like L&T Infrastructure, GMR Infrastructure, and NCC, among others have been hit by the move. Cancellations of projects after the inauguration of a new government is not a new thing in India but such moves certainly impact business sentiment. Once can only hope that the new government adheres to the law when it opens the projects for bidding again. Link

Commerce Ministry Moots Proposal for Separate Logistics Department

According to the Commerce ministry, India’s logistics sector is worth $100-150 billion and is growing at 5% annually. To remove bottlenecks, the ministry has proposed that a separate logistics department be created to handle all logistics-related issues. The new department will answer to the Ministry. The move is part of the ministry’s 100-day agenda and reportedly has the support of the PMO. Logistics costs in India are some of the highest in the world at 14% of GDP. The ministry wants to bring it down to less than 10% of GDP. Link

Indian IT Companies To See Reduced Margins in U.S Due to Policy Shift

Under Donald Trump, the U.S has embarked on a series of protectionist moves. He was quite vocal in his opposition to the old U.S H1-B visa regime, which he claimed was discriminatory to U.S IT workers. Consequently, the H1-B visa regime was changed, forcing Indian IT companies to hire more U.S workers. But local workers demand a higher salary than IT workers from India (as much as 20% more). With worker salaries constituting 65% of the operating expenses for an IT company, these companies will see a fall in their profit margins. Link

Watch out Etihad! There’s a New Kid in Town

Etihad Airlines is the world’s largest carrier by international air passenger numbers. But that position is under threat. Etihad’s net income fell by more than 2/3rds last year, to its lowest levels since 2002. Meanwhile, India’s IndiGo Airlines has cemented its position as the largest airline in India, with a 50% share of the domestic airline carrier business, aided in no small part by Jet Airways’ demise. If things continue like this, IndiGo will soon be in a position to challenge Emirates, at least in India’s international air traffic market. Link

Piramal Capital Spooked by Lodha Ratings Downgrade, Washes Hands off Lodha Debt

Piramal Capital and Housing Finance has offloaded Rs. 2000 crore of Lodha debt to Goldman Sachs. The move comes after Fitch Ratings downgraded Lodha Developers from ‘Stable’ to ‘Negative’, due to concerns that Lodha may be unable to repay debt worth Rs. 690 crore, due in March 2020, in full. This was after India Ratings also put Lodha on a ‘negative’ ratings watch in April 2019, citing delays in the sale of the company’s London assets, which was announced in December 2018. The move renews fears that we may not have seen the last of the problems in the real estate sector. Link