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Commentary

#Linkfest – Deutsche Bank Pink Slips, Desperate Chinese Manufacturers, FedEx Sues US Govt, MTNL/BSNL To Get New Lease of Life, Indigo Tussle, 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.

Deutsche Bank to Layoff Thousands Across Its Trading Business

Deutsche Bank has announced that it is closing large swathes of its trading business. The move is expected to cost at least 18,000 Deutsche Bank jobs around the world. Most of these jobs will be cut in the equities division, and the rest in the fixed income division. The brunt of the job losses will be borne by Deutsche Bank divisions in London, New York, Hong Kong, and Sydney. According to George Kutnetzov, who heads the research and analytics division at Coalition, a firm that analyzes the investment banking industry, the job market in equities has become very difficult, with incomes from equity sales and trading expected to fall by 7-8%. Link

Godrej Properties Issues 2.26 Crore Equity Shares Through QIP Route

Godrej Properties has taken the qualified institutional placement route to issue 2.26 crore new shares, at Rs. 928 per share, helping the company mop up Rs. 2100 crores. After the issue, the company’s paid up equity capital has increased to Rs. 126.01 crores from Rs. 114.69 crores earlier. The company now has 25.2 crore shares from 22.93 crore shares earlier. The company is planning to use the proceeds from the QIP to repay debt, fund working capital needs, and to invest in company units and joint ventures. Real estate companies have been the most successful in raising funds in the primary market this year. Recently, Embassy Office Parks REIT managed raised Rs. 4750 crores through an IPO, the first for a REIT in India. Link

Jerome Powell Led Federal Reserve Prepares to Cut Rates

The U.S Federal Reserve may soon cut interest rates in response to a slowing global economy and slow wage growth in the domestic job market. The U.S job market is doing well but wage rates are not picking up fast enough to trigger inflation. In fact, the Federal Reserve said that domestic inflation remains low. Meanwhile, U.S President Donald Trump has attacked the Fed for keeping interest rates high. He is said to be exploring ways to remove the Fed Chairman, though Jerome Powell has said he had no plans of stepping down and intends to complete his four year term. Link

PM Gram Sadak Yojana Gets Rs. 80,250 Crore Shot in the Arm

The Cabinet Committee on Economic Affairs has approved Phase 3 of the PM Gram Sadak Yojana, with an outlay of Rs. 80,250 crores. The new scheme will consolidate roads in rural areas and help to connect rural habitations to hospitals, higher secondary schools, and Gramin markets. A total of 125,000 km of roads will be revamped under the PMGSY Phase 3. The cost of building the road will be split in the ratio of 60:40 between the Centre and states (except J&K, Uttarakhand, Himachal Pradesh, and the North Eastern states). States will have to sign an MoU with the center, promising to provide funds to maintain the newly constructed roads for a period of five years after they are built. Link

Li & Fung, World’s Largest Consumer Goods Supplier Says Chinese Factories are Getting Desperate

According to Li & Fung, the largest supplier of consumer goods in the world, Chinese factories are facing desperate times, as U.S retailers rush to move their orders out of China to other countries. The U.S and China are currently embroiled in a trade dispute, with each side imposing heavy duties on each others’ goods. This has severely crippled the ability of many Chinese companies to export goods to the U.S. Many foreign companies have already moved their production to other Asian countries, such as Vietnam. The affected Chinese companies are reportedly offering steep discounts (to make up for the shortfall), which has interested some European and Japanese buyers. Link

Europeans Get ‘Made in India’ Apple iPhones

According to industry sources, Apple’s contract manufacturer Wistron Corp has begun to export iPhones assembled in India to European countries. The current volume of exports stands at 100,000 units a month, which is between 70-80% of the facility’s production capability. This is good news for PM Modi’s ‘Make in India’ vision, even as it enables Apple to move production out of China, its largest manufacturing base for Apple products. The move will help Apple to reduce its import duty bills, resulting in lower prices for Apple products in India, one of the largest markets for electronic goods in the world. Over time, it will also enable Apple to meet local sourcing norms, a prerequisite to establish its own stores in the country. Link

FedEx Sues U.S Government Over China Exports Tussle

FedEx, the U.S based courier delivery company has sued the U.S government saying the company shouldn’t be held responsible if it inadvertently ships technology products to certain Chinese companies, that are currently on an U.S export ban list. The move comes after FedEx returned a Huawei phone sent from the U.K to a person in the U.S. FedEx apologized for returning the phone, calling it an ‘inadvertent error’. Meanwhile, fears that the Chinese government could retaliate against FedEx for the goof up, sent FedEx shares tumbling by 2.7%. The U.S and China have been at each other’s throats for close to a year now, around issues like technology, subsidies, tariffs, cyber security, and regulations, with end in sight. Link

Telecom Minister Ravi Shankar Prasad Reveals Sad State of BSNL and MTNL

Ravi Shankar Prasad is a troubled man these days. He has been entrusted with the onerous task of trying to explain to the nation why beleaguered telecom PSUs like BSNL and MTNL that are hemorrhaging money, are worthy of being saved. He revealed that employee cost for BSNL and MTNL were 75.06% and 87.15%, respectively, far more than similar costs borne by private telecom companies. He also blamed stiff competition from private telecom companies and lack of 4G services, for the poor state of these telecom PSUs. Meanwhile, he revealed that a plan to revive these companies was on track, and IIM Ahmedabad and Deloitte had been tasked with preparing the plan. Link

Tamil Nadu High Court Says Protesting has Become a Full-time Profession

While hearing a plea by T T V Dinakaran-led Amma Makkal Munnetra Kazhagam seeking directives to the Cuddalore police to allow the outfit to organize a protest against a proposed hydrocarbon project in the district, the state’s high court remarked that protesting had become a full-time profession in the state. N Anand Venkatesh, who was hearing the case questioned the need for the protest when the state government had already declined permission for the project. He also remarked that the culture of protests in Tamil Nadu had made the state lose developmental projects to other states, costing the state a lot of money in taxes as well as employment opportunities. Link

IRB InvIT Investors In Hot Soup as the Concern Fails to Pay Adequate Returns

When the IRB InvIT lPO launched in May 2017, it attracted investors who were looking for steady returns. But two years down the line, the InvIT has failed to live up to expectations, which has sent its stock price crashing from a listing price of Rs. 102, to a low of Rs. 64.50. When the InvIT was first launched, the expected internal rate of return on the InvIT was between 13-14%. However, two of the trust’s toll projects (Jaipur-Deoli and Pathankot-Amritsar) haven’t been able to collect as much toll as expected. Moreover, two more projects will soon see the end of their concessional period. The only saving grace seems to be the current IRR on the project, which factoring in its current stock price, is a good 17%. Link

DHFL Says its Ability to Raise Funds Has Been Impaired

DHFL, one of the largest real estate financing companies in India, has warned that it is under heavy financial stress, which has impacted its efforts to raise funds. It also revealed that disbursements had virtually ceased. It said these developments have raised a serious question about the survival of the firm. It also said, the company’s ability to survive as a going concern depended on whether it would be able to monetize assets, restructure liabilities, secure additional lending, and recommence operations. It made these revelations in a note accompanying its fourth quarter results. Link

Canada’s PSP Investments and ADIA-NIIF Team Up to Buy 49% of GVK Holdings from GVK Family

Canada’s Public Sector Pension Investment Board has teamed up with Abu Dhabi Investment Authority’s National Investment and Infrastructure Fund to purchase a 49% stake in GVK Airport Holdings for Rs. 6000 crores. The deal will prevent Adani Holdings from taking over the Mumbai International Airport because it values the airport at Rs. 12000 crore, a step up from Rs. 9500 crore that Adani was willing to offer earlier. GVK Holdings has a 50.5% share in MIAL. The deal will help GVK Holdings to par its debt and invest in a new airport that it is building in Navi Mumbai, which is expected to cost Rs. 16000 crores. Link

Indigo Airlines Promoter Rakesh Gangwal Writes to SEBI Alleging Governance Lapses at Airline He Helped Found

Indigo Airlines promoter Rakesh Gangwal has written a letter to SEBI alleging that the company’s other promoter Rahul Bhatia has been engaging in questionable business practices that going forward, may potentially derail the company’s position as India’s leading airline. He has accused the latter of using the authority given to him of appointing key management personnel in the airline’s management and board, to appoint cronies and of engaging in related party transactions for his personal enrichment, which could lead to a loss of value for the company. Here’s a copy of the letter.

SBI Probe Reveals Rs. 5500 Crore Deals Within Anil Dhirubhai Ambani Companies

A SBI probe has revealed transactions between Reliance Communications and two other ADAG-group companies, which were not entered in the companies’ financial records. The probe examined more than 1,00,000 financial entries to arrive at the conclusion. The deals include a Rs. 4000 crore transfer to a little-known company called Netizen from ADAG companies. Rs. 600 crores were also placed with another ADAG company, as inter-corporate deposits. An additional Rs. 500 crores worth of loans to ADAG companies were ever-greened using the letter of credit route. ADAG Group companies are reeling under a debt of more than Rs. 1 lakh crores, with RCom alone accounting for Rs. 49,193 crores. Link

Airtel Africa Stock Crashes 10% After Nigeria Listing

Airtel Africa’s stock price fell by 10% during Wednesday morning early trades after its $4.4 billion listing on the Nigerian Stock Exchange the previous day. The stock which listed at 363 niara, closed at 399.30 niara before falling to 359.40 niara on Wednesday morning. The stock had also saw a primary listing on the London Stock Exchange two weeks ago, where it was similarly battered. Airtel Africa’s Nigerian listing comes two months after MTN’s $6.5 billion listing in Nigeria. The Nigerian economy is currently battling low growth, which reflects in the country’s stock market. The country’s president has been unable to appoint a new cabinet months after coming to power for a second time, which has also fed into the negative sentiments. Link

Rumour Mill Says Brookfield Wants to Purchase a Majority Stake in Suzlon

There is a rumour that Brookfield Asset Management would like to purchase a majority stake in Suzlon, contingent on lenders agreeing to take a 50% cut in their outstanding loans. Suzlon currently owes its lenders more than Rs. 11,000 crores. According to the rumour, Brookfield will first purchase shares through a QIP facilitated by Suzlon and later go to the market to purchase the additional shares it needs to take a majority position in the company. Suzlon recently defaulted on repaying principal on convertible bonds worth $172 million, which will put additional pressure on the company and its lenders to come to an agreement. At the time of writing this excerpt, the share was trading at Rs. 4.35 (per share). Link

Smallcap PMS Fund Manager Ask Exiting Investors to Take Shares Home

Recently, when clients of some smallcap PMSs told their fund managers that they want to leave, their fund managers reportedly asked them to take the small-cap equities into their demat accounts because of lack of liquidity. This is because the fund managers are not ready to liquidate the shares themselves fearing it could affect their holdings, potentially leading to more redemption. The small cap equity space has been in the middle of a storm in the last year or so, with many small cap companies losing market value steadily. Market watchers had hoped that the return of the NDA to power would bring a market rally but it has not happened to far. Link

Reserve Bank Working Group Recommends Extension of Currency Trading Market Hours

An internal working group set up by the Reserve Bank of India to study and recommend changes to market timings has suggested that the currency market be extended till 9 PM, covering both OTC and exchange traded products. Such a move will bring benefits such as improved pricing of post-market hours data, better price discovery and increased onshore volumes and more. The risk is that stakeholders may have to pay a higher cost. Meanwhile, the group hasn’t recommended extending the timings for GSec trading, because most of the FPIs that trade in government securities already have an Asian base and extending the market hours for GSec trading beyond 5 PM is not likely to bring more benefits. Link

Jerome Powell Cautions Facebook to Halt Libra Bitcoin Project Until Concerns are Addressed

Federal Reserve Chairman Jerome Powell has said that Facebook must stop working on its Libra project until key issues concerning money laundering, financial stability, privacy, and consumer protection are addressed. Facebook spokesperson Elka Looks responded that the company agrees with the Fed Chairman on the need for public discourse around bitcoins. That is why the company, along with 27 other founding members of Libra, had made the announcement about its plans to launch a new bitcoin, in advance, so there could be a constructive debate around the issue. Facebook had earlier announced that it is developing a cryptocurrency named Libra, in partnership with 27 other entities, and it will be launched in 2020. Link

NCLAT Plays Favorites: Says Pension and Provident Fund Will Be First to Get IL&FS Funds

The National Company Law Tribunal has said that pension and provident funds who had invested in IL&FS and/or its subsidiaries will be the first to receive funds, as and when they become available. After IL&FS defaulted on debt worth more than Rs. 90,000 crores, its subsidiaries were placed into three categories – read, amber and green, depending on their ability to remain going concerns. Recently, 3 of the 13 IL&FS subsidiaries placed under the amber list were moved to the green list, including Jharkhand Road Projects & Implementation Company, West Gujarat Expressway, and Moradabad Bareilly Expressway, bringing a major relief to some mutual funds that had invested in these companies. Link