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Commentary

#Linkfest – Mauritius Mulls Tax Changes, EPFO Kicks Out Private AMCs, Motiwal Oswal’s 420 Sub-broker, 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.

Foreign Funds Worry About Income Loss as Mauritius Mulls Tax Changes

Many foreign funds who wish to invest in India, do so via Mauritius because of the tax exemptions. This has given Mauritius the tag of a tax haven. But it might soon change, because the Mauritius government wants to redefine who qualifies as a tax resident. Currently, most of the foreign funds in Mauritius are managed from outside, though they conduct their board meetings in Mauritius. If and when the proposed changes come into force, such companies may no longer be able to claim tax residency in Mauritius anymore. Link

EPFO Tells Private AMCs to Get Lost

Alarmed by the recent spate of defaults by NBFCs and the subsequent downgrade of their debt papers by credit rating agencies, the EPFO has decided that henceforth it won’t allow private AMCs to manage its corpus. Apparently, the EPFO didn’t appreciate that a certain private AMC (to which it had entrusted its money to manage) put money in insider companies and cross-holding companies. From now on, the EPFO corpus will be managed only by state-owned AMCs and banks. The EPFO currently has a corpus of over 11 lakh crores. Link

Canada’s Manulife Bites into Mahindra AMC

Manulife, a 132-year old Canadian insurance company will soon enter the Indian mutual fund industry with a stake in Mahindra Asset Management Company. Mahindra AMC is one of India’s smaller AMCs with a corpus of just under Rs. 5000 crores. But we don’t know yet, just how much stake Manulife is going to purchase in the AMC. If Manulife purchases over 10% but under 39% in the AMC, it will become a stakeholder. If it purchases over 40%, it will become a promoter. Link

India Ratings Punishes Rel Infra’s Long Term Issuer Rating

Rating agencies and Reliance Infrastructure have no love lost for each other. India Ratings recently downgraded the company’s long term issuer rating to ‘D’ (Issuer not Cooperating) and RELInfra didn’t bat an eyelid. The agency had raised concerns about RELInfra’s financial results and ability to keep going. India Ratings says it wrote to RELInfra several times requesting clarifications on some issues but RELInfra didn’t communicate, which forced India Ratings’ hand to downgrade the company’s credit rating. Link

Saved by a Whisker: RelCapital Redeems Rs. 875 Crore of Commercial Papers

Reliance Capital (Relcapital) was recently in the news when its auditor, PwC resigned citing RelCapital’s refusal to give PwC certain financial information, for RelCapital’s most recent audit. Moreover, analysts were skeptical whether RelCapital would redeem a few hundred crores in debt, which was maturing soon. But RelCapital surprised everyone by announcing that it had repaid Rs. 875 crores in short-term commercial papers. Consequently, ICRA also revised RelCapital’s ratings on the said commercial papers to A4. Link

IndiaMart Wants to Give Investors Exit, Plans Rs. 475 Crore IPO

IndiaMart, one of the largest online platforms in India for small and medium sized businesses, is all set to launch an IPO for Rs. 475 crores. Three current IndiaMart investors – Quona Capital, Amadeus Capital Partners, and Intel Capital will exit the company through the IPO. This is the first IPO under the new NDA government. In 2018-19, IndiaMart earned an operating revenue of Rs. 403 crores, against a loss of Rs. 72.4 crores during the same period. Jefferies, Edelweiss Financial Services, and ICICI Securities are bookmakers for the IPO. Link

Oil in Floating Storage Piles Up as Geopolitical Tensions Rise

U.S sanctions against Venezuela and Iran have severely curtailed these countries’ ability to sell crude oil abroad. For instance, before the latest spate of U.S sanctions against Iran kicked in, Iran was exporting approximately 1 million barrels of oil a day, which fell to 400,000 barrels a day in May. In June, 26 million barrels of crude oil belonging to Iran and Venezuela were floating in tankers on the high seas, with no takers. According to Vortexa, a company that tracks oil shipments, crude oil (on a tanker) is said to be in long-term storage if the tanker it is loaded on, is stationary for 30 days or more. Link

Nokia and Ericsson Make Merry on Huawei’s Troubles

Huawei’s rise as a global force in the electronics space over the last two decades had a lot of companies rattled. But after U.S President Donald Trump began to target Huawei, the company’s fortunes have been visibly affected. Two companies who have benefited enormously from Huawei’s misfortunes are Nokia and Ericsson. Recently, the two companies were awarded a number of multi-billion dollar deals for telecom equipment, which were initially with Huawei. Link

Motilal Oswal Sub-broker Does a 420 on Mumbai-based Senior Citizen

When Bandra-resident Hassan Ali Dossani entrusted his life’s savings to a sub-broker of Motilal Oswal, he did not expect that at the end of it, he would be poorer by Rs. 49 lakhs. He has since lodged a police complaint against the two brothers who owned the sub-brokership, accusing them of defrauding him. The fraud came to light when Mr. Dossani asked the two brothers to liquidate a part of his investment because he wanted the money for a financial emergency. But to the shock of his life, the two brothers informed him that they had sold off the shares in the market. Link

Kangal IL&FS’s Group Company Gets Government Nod for Bihar Project

In the midst of the IL&FS group’s severe liquidity problems, an IL&FS group company, IL&FS Engineering Services has requested and received permission from the Union Transport ministry to restart a stalled Bihar road project. Work on the project, the Birpur-Bihpur national highway project will begin soon since all the permissions are in place. The question is, where did IL&FS Engineering find the money to restart the project, since it’s parent company is more or less bankrupt. Link

Piramal Enterprises Might Get a $1 Billion Glucose Shot from SoftBank

Masayoshi Son-led Piramal Enterprises might infuse $1 billion into Piramal Enterprises to support the latter’s financial services arm. The recent credit crisis has affected a lot of NBFC companies, who have been forced to explore out-of-the-box solutions to raise capital. SoftBank has traditionally not invested in any listed Indian companies. Even this time, though SoftBank is investing in Piramal Enterprises, the money is passing to one of Piramal Enterprises’ subsidiaries. Link

NTPC and PowerGrid Tie Up to Create a National Power Distribution Behemoth

NTPC and PowerGrid Corp. have signed an agreement for a 50-50 joint venture, to set up a National Electricity Distribution Company. The JV will distribute electricity in various states and Union territories. This will allow NTPC, India’s leading power generation company and PowerGrid, India’s largest power transmission network, to enter the electricity supply business. Market watchers are saying, this may just be the beginning of another set of power sector reforms in the country. Link

Crying Wolf: Why PSU Borrowings Won’t Impact Inflation as Much

RBI governor Shaktikanta Das has received support from an unlikely quarter, Bank of America Merrill Lynch. The RBI governor had argued that PSU borrowings shouldn’t be added to sovereign debt because PSUs can finance such debt through their revenue streams. He also argued that the debt is taken for capital expenditure purposes, so there is no risk of such debt raising inflation. On the same issue, former RBI deputy governor, Viral Acharya had argued that borrowings by PSUs impair monetary policy transmission because they offer higher yields, crowding out other borrowings. Link