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Firms alert Investors about Demonetization Hazards
- Published on 08 January 2017
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Scan Risks - Edited Image.Courtesy: WB report 'Riskier Future' May2016
Companies prefer rule book to Prime Minister Narendra Modi’s good book on demonetization. They are disclosing to potential investors the unfolding hazards of demonetization. The firms have thus overlooked the risk of being clubbed with demonetization critics as supporters of corruption and black money.
About a dozen companies have disclosed the anticipated adverse impact of demonetization on their operations in particular and economy in general. The companies that made such disclosures in their respective prospectus/offer documents for equity or debt include Government-controlled Housing and Urban Development Corporation (HUDCO), Mahindra & Mahindra Financial Services Limited (MMFSL) and National Stock Exchange (NSE).
Companies mention risks faced by them in compliance with Securities and Exchange Board of India’s (SEBI’s) Disclosure and Investor Protection Guidelines issued under SEBI Act. Post demonetization, such revelations are expected to become the new normal. The disclosures’ impact on issue price of equity remains to be seen.
Genpact Unnerved by Trump & Modi Govts’ Moves
- Published on 01 April 2017
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(Edit Image Courtesy: Genpact)
Genpact Limited is rattled by crossfire of threats on taxation and other regulations from the US, India (including $ 158 million tax demand) and elsewhere. The company has shared its concern with investors over growing uncertainty of the combined effect of national & regional initiatives on its business.
This Berumda-based US multinational company of GE lineage has substantial operations in India, the country where it grew up as global provider of business process outsourcing (BPO) and information technology services.
Genpact’s wholly owned subsidiary, Genpact Luxembourg S.à r.l (GLS), has vividly projected the price a globalized service provider might have to pay in increasingly insular world.
OIL Rattled by FM’s ‘Oil Major’ Proposal
- Published on 21 April 2017
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(Quest for Black Gold. Image Courtesy: OIL)
Oil India Limited (OIL) is flustered by Finance Minister Arun Jaitley’s 2017-18 budget proposal to create a vertically integrated public enterprise with presence in entire hydrocarbons value chain.
OIL has shared its concern on this issue through its wholly owned subsidiary, Oil India International Pte Ltd (OIIPL). It has told foreign investors that the proposal “to merge all public sector entities in oil and gas sector into one entity may adversely affect the business and operations” of its parent company.
In its $ 500 million debt offer completed on 11th April, OIIPL says: “A restructuring of the entire oil and gas public sector to consolidate all units in to one oil company may be difficult to achieve and it may have an adverse effect on the Guarantor’s (OIL’s) business, financial operations and results of operations as well as the Notes (10-yr debt instrument)”.
Mr. Jaitley, in his budget speech delivered on 1st February, stated: “We see opportunities to strengthen our CPSEs (central public sector enterprises) through consolidation, mergers and acquisitions. By these methods, the CPSEs can be integrated across the value chain of an industry. It will give them capacity to bear higher risks, avail economies of scale, take higher investment decisions and create more value for the stakeholders. Possibilities of such restructuring are visible in the oil and gas sector. We propose to create an integrated public sector ‘oil major’ which will be able to match the performance of international and domestic private sector oil and gas companies.”
The Government has not yet concretized the ‘oil major’ idea. This is evident from Petroleum and Natural Gas Minister Dharmendra Pradhan’s evasive reply to a question in Lok Sabha on 10th April. He merely reiterated Mr. Jaitley's proposal while ducking two specific issues.
These are: (a) Whether the Government proposes to merge nationalised oil companies in the country and if so, the details thereof along with the modalities/ salient features of the same; and (b) whether any time line has been fixed for the said merger and if so, the details thereof?
Referring to Mr. Jaitley’s proposal, OIIPL says: “Such a restructuring may pose number of legal and organisational challenges to the Guarantor. As public sector entities created by the parliamentary mandates, legislative and regulatory hurdles may not only be difficult to clear, but also pose risks to functioning of the Guarantor. While such a restructuring may eliminate excess workforce and duplication of facilities, it may lead to other unintended consequences.”
It adds: “Different firm cultures might be difficult to integrate into one proposed consolidated entity and collaboration of human resources may pose imminent risks to the functioning of the proposed entity.”
The merger proposal was last studied and trashed by a committee of experts in 2005. The Advisory Committee on ‘Synergy in Energy’ observed: “Having ruled out the restructuring through merger or creation of a holding company or a coordination body, in order to leverage the strength of the oil PSUs for fulfilling their contribution to the national objectives of energy security, accelerated growth, sustained development and social objectives of Government policy, the Committee is of the view that while recommending retaining of the present structure, certain structural, policy changes and management solutions require to be carried out.”
As for $ 500 million debt offer, OIIPL would utilize $ 497.9 million net proceeds of the issue to refinance bridge loan it took last year from international banks to fund acquisition of stakes in two Russian oil and gas companies.
In October 2016, OIL, Indian oil Corporation (IOC) and Bharat Petroleum’s subsidiary, Bharat PetroResources Limited, jointly acquired participating shares representing 29.90% of the charter capital of LLC Taas-yuryakh Neftegazodobycha (TYNGD) and participating shares representing 23.90 per cent. of JSC Vankorneft.
The equity interests were acquired through JVs named Taas India Pte. Ltd. And Vankor India Pte Ltd. These JVs as well as OIIPL are incorporated in Singapore. OIIPL holds 33.50% equity stake in both the acquiring JVs.
The current combined production of crude oil by TYNGD and JSC Vankorneft is about 22 million tonnes per annum (MTPA). OIL’s share of this output is 1.8 MTPA. These companies are also producing about 5.6 billion cubic metres of gas per annum.
OIL India says it would continue acquiring both exploration acreages abroad. It intends to implement this strategy both through JVs with other leading industry participants, as well as through its memorandum of understanding (MOU) with IOC.
Under this MOU, it has a mutual right of first refusal in connection with bidding activity for certain exploration acreages and producing properties identified by either party. The MOU allows it to enter into project- specific agreements for overseas oil and natural gas exploration, development and production opportunities.
OIL has also entered into certain other MOUs with different companies in the upstream and downstream sectors to pursue E&P opportunities at home and abroad.
On the home turf, the company has decided to monetize its hitherto undeveloped gas reserves in Assam. As of 31 March 2016, OIL had estimated proved plus probable natural gas reserves of 42.31 billion cubic metres (which include certain reserves attributable to fuel gas consumption). Of these, 94.80 per cent are located in the Upper Assam basin, an asset with proven commercial production.
Says Offering Circular: “The Guarantor has historically not conducted development activity in the natural gas sector because of the lack of demand for natural gas in markets within Assam.”
With the country’s domestic gas consumption exceeding domestic supply by 51%, the company is gearing up to commercialize its gas reserves.
Trump’s steel fiat might bring #AchheDin for Indian US-based plants
- Published on 23 April 2017
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(Edited Image Courtesy: JSW)
President Donald J. Trump’s move to protect & revitalize US steel companies should create realization in Trump Administration about India-US manufacturing bonds.
The relevance of this issue lies in the fact that Indian steel majors such as JSW and Essar have troubled manufacturing operations in the United States.
On 20th April, Mr Trump signed a Presidential Memorandum prioritizing an investigation initiated by the Secretary of Commerce into whether steel imports threaten to impair the national security. What action he takes would depend on the conclusion of the investigative report that is to be submitted within 270 days.
This may appear to be long haul for JSW Steel Limited (JSL), whose American plants are operating at abysmally low capacity utilization for the last few years. This has led the company into restructuring its loss-incurring steel business in the United States.
From the Files