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Commentary

#Linkfest- ZEEL Rescues Its Promoter, Suzlon May Default on FCCBs, Pension Funds Do a #MeToo, Godrej Family-Fued, Vanilla Sky(rockets), 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.

Zee Entertainment Rescues Its Promoter with Rs. 175.02 Crore Loan

It has come to light that Zee Entertainment has advanced Rs. 175.02 crores to certain ZEEL promoter group companies, after these companies defaulted on repaying their creditors. Some mutual funds, including Kotak Mutual Fund and HDFC Mutual Fund had to roll over/delay a few FMP repayments, because the ZEEL promoter companies failed to repay them on time. The promoter had secured the mutual fund loans by placing ZEEL shares as collateral. According to Capitalmind’s Deepak Shenoy, the ZEEL loans to the promoter companies’ sets a bad precedent, because it exposes ZEEL to potential defaults in the future. Link

Piramal Enterprises to Bow Out of Shriram Capital

When Piramal Enterprises invested in Shriram Transport Finance in 2013, and its holding company, Shriram Capital in 2014, it did so with a long-term vision. It wanted to merge Shriram Capital into Piramal Enterprises. But the deal never took off, because that would have meant a dilution of Piramal’s stake in the new entity. The final nail in the coffin was Piramal Housing Finance’s (a Piramal Enterprises subsidiary) large exposure to real estate debt. The tightening of liquidity, coupled with Piramal’s inability to absorb Shriram Capital, meant that Piramal had no choice but to exit the Shriram Group. The company still maintains a stake in Shriram Capital, but that will also be sold soon. Link

Suzlon Doesn’t Have Money to Repay Rs. 1.2K Crores Worth FCCBs Maturing in July

Suzlon, India’s largest renewable energy company is facing down the barrel of a gun. It doesn’t have the money to repay Rs. 1.2K Crores in FCCBs, which are maturing in July. If and when this happens, it will probably be the final straw for a company that has been struggling to keep afloat for the last few years. Suzlon was actually in negotiations to transfer equity to Vestas, the Dutch maker of wind turbines in return for funds, but that deal didn’t go through. If Suzlon defaults on the FCCBs, its FCCB debtors can immediately recall the debt, which will put Suzlon in more trouble. It remains to be seen how Suzlon will repay the FCCBs, because its net worth is already negative, thanks to steady losses over the years. Link

MeToo! Pension Funds Want the Same Tax Treatment as NPS

Under the tax code, you can invest an additional Rs. 50,000 in the NPS, apart from the Rs. 1,50,000 you are already allowed to under section 80C, and you won’t be taxed for the same. Now, Indian insurance companies have demanded that the government give them parity with the NPS in tax matters. They have also demanded that the principal in an annuity be exempt from tax. Currently, both the principal and the interest are taxed. The demand was put forward by a coalition of 23 national insurers, including LIC and they want the exemptions to be given to them in the coming budget. Link

Former Boeing Software Drops a Bombshell on Software Development at Boeing

A former Boeing Software Engineer, who was laid off by the company in 2015, has accused Boeing of outsourcing the software development work for the Boeing 737 Max (aeroplane), to foreign companies, whose workers weren’t equipped for the work. Boeing’s 737 Max has been plagued by a series of crashes in recent times, like the Lion Airline and Ethiopian Airline crash, where 346 people lost their lives. Investigators suspect that the crashes were caused due to issues with the flight control system, leading the aeroplanes to plummet into dives they couldn’t recover from. However, HCL, one of the software vendors to Boeing, denied that it had nothing to do with any of the problems associated with the 737 Max. Link

Is the Godrej Family Battling Internal Feuds?

Two factions of the Godrej family have engaged two separate teams of investment bankers and lawyers to untangle the family’s vast land holdings in the Mumbai suburb of Vikhroli. The Godrej group owns about 3400 acres of land in Vikroli. Of this, an estimated 1000 acres can be developed. The present value of the land is supposedly Rs. 20k crores. The Godrej family is currently split into two factions, one led by Godrej Group Chairman, Adi Godrej and the second one led by Jamshyd Godrej, the Chairman of Godrej and Boyce Group. People have begun to suspect that a family rift may have led the two families to appoint two separate teams for the investigations. Link

Future Group Enters Indian Dairy Business with New Zealand’s Fonterra Group

Kishore Biyani-led Future Group has announced that it is entering the highly competitive Indian dairy business, with a partnership with New Zealand’s Fonterra Co-operative. This will bring the latter’s Dreamery brand of milk products to India. However, the JV will have to contend with existing players such as Mother Dairy, Amul, Nestle, Parag Milk, Kerala’s Milma, and Karnataka’s Nandini. According to Kishore Biyani, the JV could do business worth Rs. 5000-6000 crore in the next five years and will enable Fonterra to enter the Indian market and harness the Future Group’s large retail presence. Link

Court Issues Non-bailable Warrant Against Kingpins of False IndiaBulls Case

The Gurgaon police has unearthed a major extortion racket, where listed companies were targeted and threatened with court cases to extort crores of rupees. The scam was allegedly run by a father-son lawyer duo, called Ram Mani Pandey and Kislay Pandey. The duo were thrown into the national spotlight when they filed frivolous cases against IndiaBulls Housing Finance through a puppet, accusing the firm’s promoters of siphoning off thousands of crores of rupees from the company. The Court has now issued a non-bailable warrant against the accused, who are on the run. Link

Honda Says NITI Aayog Proposal to Phase Out Two and Three-wheelers by 2025 is Unsound

Recently, the NITI Aayog, a Central-government policy think-tank proposed that two and three-wheelers be phased out by 2025, and replacement by electric vehicles. Criticizing the proposal, TVS Motors and Bajaj Auto said that if the move is implemented, it will seriously jeopardize the government’s ‘Make in India’ mission and lead to job losses. Hero MotoCorp said that the proposal is coming at a time when Indian two and three-wheeler engines have become the global benchmark for low carbon emission and fuel efficiency. Honda Motorcycles & Scooters also remarked that it was too early to push for electric vehicles, because the infrastructure just didn’t exist on the ground. Link

Coca Cola May Acquire Stake in Cafe Coffee Day

According to reports, Coca Cola wants to buy a stake in Cafe Coffee Day, the largest coffee chain in the country. It may be because Coca Cola wants to enter the cafe space and also reduce its reliance on its core business of carbonated drinks. Cafe Coffee Day has 1750 cafes in India and across the world, but has been plagued by inefficiencies and rising debt, causing losses to balloon to Rs. 22.28 crores in the latest quarter, against an income of 76.9 crores. Despite this, Cafe Coffee Day continues to lead in the cafe space, even as it contends with rivals like Starbucks, Costa Coffee, and Barista. Link

HDFC Bank Wants to Take HDB Financial Services Public, Hires Merchant Bankers

HDFC Bank’s non-banking finance arm, HDB Financial Services is on the verge of going public. According to rumors, HDFC Bank has hired Bank of America and Morgan Stanley to help it with the listing process. If and when the company lists, HDFC Bank, the largest lender in India by market value, will be richer by $1.4 billion. The move comes at a time when many Indian NBFCs are struggling to raise funds for recapitalization. HDFC Bank may use the proceeds from the IPO to strengthen its own lending. HDB Financial Services shares are already trading at Rs. 500-550 in the private market. Link

Iran’s Loss is the U.S’s Gain, as Indian Refiners Buy More Oil from the U.S

U.S sanctions against Iran have severely curtained the latter’s ability to export oil, as countries shy away from Iranian crude. India, the world’s third largest buyer of crude oil has also cut down its purchase of Iranian crude oil, bowing to U.S pressure. This has forced Indian refiners to turn to an unlikely source to make up for the shortfall – the U.S itself. Indian bought 184,000 barrels of crude oil per day from the U.S between November 2018 and May 2019, as against 40,000 bpds in the same period last year. This is good news for the U.S because it gives it a market for its shale oil. The U.S is currently the largest crude oil producer in the world. Link

Natural Vanilla Prices Skyrocket Thanks to Increased Demand for All-natural Foods

As awareness of the benefits of all-natural foods increases, the demand for ingredients like natural vanilla has also shot up. Until recently, synthetic vanilla had overshadowed expensive natural vanilla, causing many farmers to abandon vanilla production. But thanks to the renewed interest in natural foods, vanilla prices are now 10 times of what they were five years ago. The demand is so high, vanilla farmers are unable to cope with the demand. The problem is, natural vanilla production is very labor intensive, and it mainly grown in Madagascar. Second, the pollination window is extremely small and the flowers have to be fertilized by hand, which adds to the high price. Link

Three Acre BKC Plot Gets Rs. 2238 Crore Bid from Japanese MNC Sumitomo

The MMRDA has received a Rs. 2238 crore bid for a 3 acre plot from Sumitomo, a Japanese MNC. This may be the largest real estate deal of its kind in India till date. The plot was put on sale a few months ago, but found no takers because local builders are short of cash, thanks to a NBFC liquidity crunch and stagnant real estate sales. BKC or Bandra Kurla Complex is home to more than 300 buildings, nearly all of which were built after 1977, when the government decided to develop the locality. Sumitomo’s plans for the property are not yet clear but it if acquires the land, it will get the right to develop 10 lakh square feet of space on the land, which it can use to house its India offices. Link

Hindujas May Pump in Rs. 2700 crores into IndusInd Bank to Increase Stake

The Hindujas might soon invest Rs. 2700 crores into IndusInd Bank, post the bank’s merger with Bharat Financial. This will bring the promoter stake in IndusInd Bank back up to 15%. The merger between IndusInd Bank and Bharat Financial was announced in October 2017, where it was decided that Bharat Financial shareholders would get 639 shares of IndusInd Bank for every 100 shares of the latter. Post the merger, Bharat Financial will become a 100% subsidiary of IndusInd Bank. It will not only help the bank enter the micro lending space, but also help it to extend its services to rural areas, where most of Bharat Financial’s customers are. Link

Austria Gears Up to Issue Government Bonds with 2.1% Yield

Two years ago, Austria issued a 2.1% yield government bond that had a maturity period of a 100 years, i.e these bonds will mature in 2117. Today, those same bonds are selling for 60% higher than their issue price, taking the effective yield to just 1.2%. Buoyed by the demand for the last set of bonds, Austria is said to be contemplating a fresh issue. There is definitely a hunger for top rated government debt, even if its ultra long, like the Austrian one, as life insurance companies and pension funds scout around for safe investments. Link

L&T Acquires 60% Stake in Mindtree, becomes majority shareholder

L&T has acquired a 60% stake in Mindtree, making it the majority shareholder in Mindtree. This gives L&T the right to affect changes to Mindtree’s management and board. Now that it has the numbers, there are rumors that L&T may also try to reverse Mindtree’s earlier decision to give a 20% special dividend to its shareholders. L&T’s attempt to acquire Mindtree was beset with a lot of problems, as the company had to convince several large institutional shareholders to sell their shares to the company, such as Nalanda Capital, Amansa Holdings, UTI Mutual Fund, Franklin Templeton Asset Management. Link