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ICICI Sec Passes On M&A Work To ICICI Bank To Tap Aquisition Funding

Sahad P V — Fri, 03 Jul 2009 04:26:24 -0700

ICICI Securities Ltd (I-Sec), the investment banking subsidiary of ICICI Bank, has ceded a major role to the parent. I-Sec will not do M&A advisory work on such deals which involve a change in the control of the company. From now on, such mandates will be done by the internal investment banking division of ICICI Bank.

The Economic Times reported, quoting Madhabi Puri-Buch, MD & CEO of I-sec, that her firm will not do such M&A mandates where control changes hands. “Since a predominant number of people, who wish to be advised on M&A, also look for acquisition finance, it was decided that the business should be housed in the bank,” Puri-Buch told ET. “Now, if a corporate is seeking a sell mandate or a buy mandate, where the transfer of controlling interest takes place, the deal will be done by ICICI Bank.”

This is an interesting development since it means ICICI Bank will be strengthening its role in M&A advisory business. And this will also help ICICI Bank compete with multinational biggies like Citigroup, Standard Chartered Bank, Royal Bank of Scotland, Nomura and BNP Paribas in funding large acquisition deals.

And acquisition financing is becoming a major determinant for bagging mandates for large M&A deals. Right now, MNC banks like BNP Paribas and Indian banks like State Bank of India are in race to fund Bharti Airtel's deal with MTN.

ABN Amro, which was an advisor in Tata-Corus acquisition deal, had provided acquisition financing to the Tatas.

Leaving large M&A advisory business for the bank means I-Sec will have to satisfy with smaller M&A deals, private equity advisory, IPO advisory and institutional and retail broking.

ICICI Bank's position in Mergermarket league tables shot up to No 3 in 2008 with 17 M&A deals worth $1.1 billion in its kitty compared to 22nd position the previous year with just 3 deals.

News Roundup: Emami Raises Rs 300 Crore from QIP Issue

Ruchika Sharma — Thu, 02 Jul 2009 22:11:07 -0700

Emami Raises Rs 300 Crore from QIP Issue - Kolkata-based FMCG major Emami Limited has raised Rs 310 crore through a qualified institutional placement (QIP) issue. The company placed 100,00,000 equity shares of Rs 2 each at the issue price of Rs 310 per equity share, aggregating to Rs 310 crore, with institutions. The proceeds from the QIP issue would be used to develop new products, pay off debt, and invest in secured instruments to protect all stakeholders interest. The funds may also be used for general corporate purposes, temporarily invest funds in creditworthy instruments, including money market mutual funds and deposits with banks. (Business Standard)

Balco Residual Stake Sale on Fast Track - The three-judge arbitration panel set up to resolve the controversy over the sale of the government’s residual 49 per cent stake in Sterlite-controlled Bharat Aluminium Company Ltd (Balco) has decided to meet in August, raising hopes of a resolution to the five-year-old dispute. Sterlite, a subsidiary of London-listed Vedanta, bought 51 per cent in Balco in March 2001 for Rs 552 crore when the National Democratic Alliance (NDA) government decided to divest the government’s stake in the public sector company. Sterlite owned the right to buy the remaining stake in the aluminium producer after a three-year embargo, but ran into differences with the government over valuation. (Business Standard)

Not Much Value in Merging With UltraTech: Grasim - Grasim Industries, the leading cement maker of the A V Birla group, is not enthusiastic at a proposal to merge with its subsidiary, UltraTech, as it does not see value in the process at this stage. It says investment bankers suggested merging after engineering giant Larsen & Toubro sold its residual 11.5 per cent stake in UltraTech to financial investors this month. Grasim acquired UltraTech Cement from Larsen & Toubro in 2003. In 2005-06, it created a single marketing team for both companies to save on energy and cost. In 2007-08, it even phased out Grasim’s national brand, Birla Super, to establish UltraTech as a single brand. If merged, they will become India’s largest cement firm, with a combined capacity of 42 million tones a year, overtaking ACC, controlled by Switzerland-based Holcim. However, the merger would attract a substantial capital gains tax, besides stamp duty on plant and machinery that varies between 1 to 8%from state to state. (Business Standard)

SKNL to Raise Rs 1,000 Crore - Textile major S Kumars Nationwide Ltd (SKNL) plans to raise Rs 1,000 crore through issue of shares on qualified institutional placement (QIP) basis to fund its expansion plans. (Business Standard)

LG Balakrishnan to Acquire MM Gears - Coimbatore-based LG Balakrishnan & Bros (LGB) Ltd, a motorcycle chains manufacturer, has entered into an agreement with the promoters and directors of Coimbatore-based M M Gears Pvt Ltd for acquisition of 100 per cent shares of the latter, subject to satisfactory due diligence, the company informed the BSE. MM Gears is engaged in the manufacture of gears and gear boxes. (Business Standard)

Sonata Eyes Firms in $50 Million Revenue Range - Even as it is strategically expanding into new geographies, Sonata Software Ltd is considering the inorganic expansion mode to further fuel growth. The company is looking at cash flow positive companies with revenues in the range of $50 million and a mature business model which can afford scope for cross-selling of services. Companies specialising in niche markets and areas like infrastructure management and managed desk services would make good strategic fits for Sonata. (Business Standard)

HDIL Raises Rs 1,688 cr from Fidelity, Others - Housing Development & Infrastructure Ltd (HDIL), a Mumbai-based property developer, has raised Rs 1,688.40 crore from global investors, such as Blackstone and Fidelity, in a qualified institutional placement (QIP) of its shares. In the last three months, Unitech (which raised funds through QIP twice), Indiabulls Real Estate and Sobha Developers, among others, have raised Rs 7,600 crore. (Business Standard)

US Agency to Lend Chennai Finance Firm $80 Million - The Overseas Private Investment Corporation (Opic), a US agency that helps American companies invest abroad and promotes the development of emerging markets, will lend $80 million (Rs382.4 crore) to Repco Home Finance Ltd (RHFL). Opic will give the Chennai-based housing finance company a 23-year loan in two portions, $30 million and $50 million, subject to clearance from the Reserve Bank of India (RBI). (LiveMint.com)

Kavveri Telecom Acquires Canada Based Design and Development Co.

Madhav Chanchani — Fri, 03 Jul 2009 04:54:19 -0700

Kavveri Telecom Products Ltd., which manufactures antennas and RF (Radio Frequency) products, has acquired Canada based design and development company, Trackcom Systems International, for an undisclosed amount. Kavveri has made the acquisition through its wholly owned subsidiary Kavveri Technologies International, Canada.

According to a report in The Hindu, Kavveri now holds a 67% stake in Trackcom Systems International. The company plans to continue hiking its stake in Trackcom over the next few years.

While Kavveri manufactures base station antennas and accessories for both GSM and CDMA operators, Trackcom does designing and development for defence, electronic warfare and aerospace areas. Kavveri now plans to make a foray into these areas too. Kavveri also manufactures antennas for use in In-Building Solutions (IBS), specialised antenna for use in the defence sector and antenna for WiMAX.

The acquisition will give Kavveri an access to Trackcom’s portfolio of RF products and antennas of upto 40 Ghz useful for space, defence and telecom applications, besides enabling its foray into the defence and space segments. Kavveri will also now be able to tap the wireless market in digital video broadcast, IPTV, mobile TV and WiMAX.

Kavveri has till now acquired 3 Canadian companies that include antenna manufacturer- Til-Tek, DCI Canada, which operates in the area of RF products and filters and Spotwave Wireless Inc. Canada. Kavveri had also acquired the technology and IP rights of Sigma Wireless, Ireland from PCTel USA.

Kavveri Telecom Products was established in 1991. Its customers include Motorola, Ericsson, Nokia-Siemens, Nortel, ZTE, Alcatel-Lucent, Idea, Reliance, BSNL and WorldSpace.

Vineet Buch Leaves BlueRun Ventures; Back To His Startup

Sahad P V — Fri, 03 Jul 2009 01:33:19 -0700

Vineet Buch, a venture partner at BlueRun Ventures, has left the investing job and has returned to Like.com Inc, a startup he helped found in 2004. Buch is joining Like.com as Vice President, Corporate Development, reports Wall Street Journal.

Like.com is a visual-search company, which helps improve shopping experience of people. WSJ quotes from Buch's email to his contacts: “We are building the leading fashion shopping experience at Like.com, and are expanding our offerings through strategic acquisitions as well as organic growth.”

Like.com, which has raised more than $50 million from a bunch of venture firms including BlueRun, is looking at making some strategic acquisitions to expand its offering to fashion shopping. Buch currently serves on the board of Like.com.

Buch was also one of the co-founders of Riya.com, a visual serach firm founded by the same team of Like.com Inc. Buch had left the startup and joined BlueRun Ventures in 2005.

In his previous roles, Buch had also co-founded systems management software provider, Karient. He was also the CTO at Karient.

He has also served as the director of product management and software development at Oracle Server Technologies, which develops the Oracle Database and Application Server. He was also the senior director of engineering at Corio, an application service provider that was acquired by IBM. Buch has an MS in Computer Science from Cornell University and a B.Tech. in Computer Science from IIT, Kanpur.

Even though Buch is out of BlueRun, he will continue to invest as an angel investor in early-stage start-ups, the report says.

BlueRun was earlier known as Nokia Venture Partners. It changed its name in 2005 when it decided to become independent from the Finnish mobile company, Nokia. In April this year, BlueRun closed on just under $250 million for its fourth fund.

Railway Budget Focuses on Fares, Services

Madhav Chanchani — Fri, 03 Jul 2009 03:20:35 -0700

India's railway minister unveiled a mix of populist measures, including cheap tickets for the poor and no increase in freight or passenger fares, as well as steps to boost the sprawling system's efficiency and finances.

Friday's railway budget speech underscored the Congress party-led government's focus on "inclusive growth" after it was reelected by a wider-than-expected margin in May. Prime Minister Manmohan Singh's government will present its budget on Monday. "The old mindset of economic viability should be substituted by social viability," Railways Minister Mamata Banerjee said in an address to parliament.

Banerjee, looking to take advantage of the railway's vast property holdings, said land along the new freight corridor would be put to productive use, and also said the railway operator will resume issuance of tax-free bonds.

Over the five years through March 2009, India's railways generated a cash surplus of about $18.8 billion.

She also said the group will build a 1,000 megawatt electricity plant -- India suffers from a severe energy deficit -- to power electric locomotives. She said the system would look to introduce double-decker trains, and take advantage of its fibre-optic communications network. "I visualise an eastern industrial corridor developing alongside the eastern dedicated freight corridor," she said in the ministry's annual budget address.

Arun Kejriwal, research strategist at broker KRIS in Mumbai, said the speech gave a clue to the government's policy leanings.

"One key takeaway that probably is an insight for the main budget is that the 'aam admi', the common man, seems to be an underlying concern," Kejriwal said.

"That gives you a hint that if anybody is expecting great things, a forward-looking reformist budget, I'm not sure that is the right way to look at it."

With a 63,327-kilometre (39,350 mile) network, the railways play a key role in Indian life, transporting more than 18 million passengers and more than 2 million tonnes of freight daily.

But the system is plagued by crowding and outdated technology. Every day, about 8 million passengers cram onto commuter trains in the financial hub of Mumbai, with roughly a dozen daily fatalities.

PASSENGERS FIRST

Banerjee said meeting needs of passengers is more important than financial performance.

To that end she said 50 stations would be upgraded to international standard, and she outlined plans to improve toilets, food and water availability, and shopping at stations.

For the poorest passengers, for whom railway transport is the most popular form of long-distance travel, Banerjee said fares would cost just 25 rupees (about 50 cents) for trips up to 100 kilometres.

She set a target for freight traffic in the fiscal year that ends in March 2010 of 882 million tonnes, up 6 percent from a year earlier. Freight traffic increased 5 percent in the recently completed fiscal year.

There was little early reaction from the markets. The yield on the most actively traded 7.94 percent bond maturing in 2021 was unchanged at 7.03 percent while the benchmark stock market was 0.2 percent up.

SKS Microfinance Gets Rs 50 Cr Investment From Bajaj Allianz

Sahad P V — Thu, 02 Jul 2009 10:19:51 -0700

SKS Microfinance, India's largest microfinance institution, seems to be in ever need of capital to fuel its growth. The Hyderabad-based non-banking finance company has received a strategic investment of Rs 50 crore from insurance firm Bajaj Allianz Life Insurance.

SKS has so far raised $123.5 million in equity alone from Sequoia Capital and Sandstone Capital, among others. SKS also recently became the first MFI to raise Rs 75 crore via non convertible debentures (NCD) and list the same in Bombay Stock Exchange. Previously it had raised Rs 25 crore via NCDs which was subscribed by Yes Bank. It had also completed a securitisation deal worth Rs 100 crore.

Bajaj Allianz's equity deal with SKS seems to be the culmination of a strategic partnership the firms had with each other. SKS and Bajaj Allianz partnered in April 2008 to launch a micro-insurance product for the rural poor.

The latest round will help SKS Microfinance further improve its capital adequacy ratio requirements. In recent months, SKS has introduced a range of mainstream financial instruments into microfinance.

“An investment in SKS by a mainstream investor such as Bajaj Allianz is a vote of confidence in the company and in microfinance. Investment from a leading private insurer gives SKS greater stability and credibility, as well as a stronger capital base to extend our reach to serve more poor customers,” SKS founder and chairman Vikram Akula stated in a press release on Thursday.

SKS Microfinance currently has a membership base of 4.5 million households and has cumulatively disbursed loans worth over Rs 8,000 crore. It has staff strength of 14,249 across 1,439 branches in 19 Indian states.

Laxey Partners Exits Its Investment in Hirco

Ruchika Sharma — Fri, 03 Jul 2009 02:54:34 -0700

It’s a second victory for the Hiranandanis, the promoters of the AIM listed real estate company, Hirco Plc. as the company’s activist shareholder - Laxey Partners has exited its investment in the company by selling its entire stake to HSBC.

Laxey has sold its entire 11.63% stake or 8,896,513 Shares in the company at a price of 95 pence per share for a total consideration of 8.72 million pounds (Rs 68 crore). Post the transaction, HSBC’s stake in the company has gone up to 21% from its initial holding of 9.9%.

According to a report in Business Standard, Laxey Partners was not comfortable with the company’s idea of merging Hirco Plc with their developer. Laxey has exited its investment in Hirco as it had got sufficient returns on its investment.

In May this year, in the company’s extraordinary general body meeting, Hirco Chairman Niranjan Hiranandani tasted his first victory against Laxey partners when 60% of the shareholders voted against Laxey’s proposal to remove three Hirco directors and replace them with its own nominees.

In the beginning of the year, the activist investor had demanded a non-Hirnandani chairman for Hirco. Laxey wanted Hirco to change three of its directors and install an independent chairman instead. Laxey had proposed to bring in four independent directors on the board including Andrew Pegge, Laxey co-founder, and Laxey executives Michael Haxby, John Bourbon and Aled Rhys-Jones.

Hirco also had to shelve its plans to merge its real estate projects (township developments at Panvel near Mumbai and Chennai) and Hirco Developments, a development firm, with its investment arm Hirco due to a strong opposition from Laxey Partners. Laxey cited that the merger would dilute their interest and in turn effectively cede control to the Hiranandani family.

Share Microfin Plans IPO; To Close Rs 250 Cr PE Round In A Month

Madhav Chanchani — Fri, 03 Jul 2009 02:17:33 -0700

Hyderabad-based Share Microfin Ltd, the second largest microfinance institution (MFI) in India, is planning to go for a public offering in next two years. “In less than two years, we can for an IPO,” said Dr Udaia Kumar, Founder and Managing Director, of Share Microfin Ltd in an interview to VCCircle.

The company is also raising a private equity round of $50 million (Rs 250 cr), which it plans to complete in a month's time. Share is raising funds from its existing investors and International Finance Corp (IFC), the private equity arm of the World Bank, and others.

Share is also charting out an aggressive expansion strategy. The MFI plans to have 13 million clients with cumulative loan distribution of Rs 68,000 crore by 2014, said Kumar. Share Microfin presently has 2 million clients with cumulatively distributed Rs 5,300 crore in loans.

The firm's funding requirements will also be huge to support these expansion plans. Kumar estimates that his firm will need an additional equity investment of Rs 450 crore to reach its target, and Rs 30,000 crore as debt funding.

In 2007, Share had diluted more than 51% stake to Legatum Ventures for $25 million. It also raised $2 million from Aavishkar-Goodwell then.

Share has also started selling products like insurance, for which it has tied up with Life Insurance Corporation (LIC) and Bajaj Allianz. It also offers personal loans and is exploring products like mutual funds and housing finance.

Besides Share, another leading MFI planning an IPO is SKS Microfinance, India’s largest MFI, is planning a listing in next 18 months. SKS, which raised a $75 million round from hedge fund
Sandstone Capital in November last year, announced yesterday that it has raised another $10 million from Bajaj Allianz. The insurance firm has picked up a strategic stake as it has tied with SKS to sell its insurance product. SKS has also been raising capital through non-convertible debentures, and it recently listed Rs 75 crore worth debentures in Bombay Stock Exchange. SKS has a membership base of 4.5 million households across the country.

SBI Offers Bharti $1 Bln Loan For MTN

Madhav Chanchani — Fri, 03 Jul 2009 02:41:07 -0700

State Bank of India has offered a loan of up to $1 billion to Bharti Airtel to partly fund the Indian telecoms firm's planned stake buy in South Africa's MTN, two sources said.

The government-run bank, which along with its associates controls a quarter of Indian bank loans and deposits, will join a clutch of foreign lenders interested in funding the deal that aims to create the world's third-biggest wireless group with more than 200 million subscribers and combined revenue of $20 billion.

"Bharti is our customer. We looked at the transaction and thought we could be part of it too," one source, who has direct knowledge of the transaction, said.

State Bank has offered the loan for between 3 and 5 years, said the two sources, who cannot be named as they were not authorised to speak to the media.

"We have no further comment to offer at the moment," said a spokesman for Bharti, referring to its statement in May announcing the leading Indian mobile operator had revived exclusive talks with MTN for a merger.

State Bank officials declined comment.

Under a complex deal structure announced in May, Bharti would end up with 49 percent in MTN and the South African firm and its shareholders would own a total 36 percent of Bharti. The exclusive merger talks could run till the end of July.

Brokerages have estimated a net cash outflow of about $4 billion from Bharti in the deal.

Bharti is yet to talk about how it will fund the deal, but has said the funding requirements would not be "onerous".

Sources have said Standard Chartered, advisor to Bharti in the transaction, has agreed to underwrite $1 billion and help in raising the balance $3 billion required.

Debt funding is seen as the best option for Bharti, which has recently become cash-flow positive, and dividends from MTN could help it service the loan, analysts said.

Also just $629 million in net debt at the end of March, representing a net debt to EBITDA (earnings before interest, tax, depreciation and amortisation) of 0.25, makes it easier for the firm to take on more debt, they said.

U.S. banks, which have funded most of India's overseas acquisitions, are wearily treading around Bharti deal as more than a tenth of MTN's revenues come from Iran, Sudan and Syria -- states where the United States sets tough restrictions on U.S. firms from dealing.

State Bank had earlier partly funded overseas acquisitions of Indian companies, including the $13 billion buy of Anglo-Dutch steel maker Corus by Tata Steel.

With $30-M On Books, Cybernet-SlashSupport Scouts For Acquisitions

Madhav Chanchani — Wed, 01 Jul 2009 23:37:36 -0700

Cybernet-SlashSupport (CSS), a technology operations management company, is aggressively looking for acquisitions with backing from its private equity investors. The firm has $30 million cash on its balance sheet and is looking to grow its topline inorganically. The California headquartered firm, which has its main development centre in Chennai, is looking to acquire a company which could augment one of its four businesslines, CSS interim CEO Sanjiva Singh told VCCircle. “Our goal is to complete a deal in this fiscal,” said Singh.

The revenue size of the taregt firm could be up to $50 million, and the entire acquisition will be funded from the company balance sheet.

The private equity backed firm has four lines of business – enterprise support services, customer support services, remote infrastructure management and outsourced product development. “We are looking at expanding in our present business lines, either by adding scale or by adding newer, deeper capability to those areas,” said Singh. CSS could also look at newer geographical or vertical access through acquisitions.

CSS has raised multiple rounds of private equity funding. SAIF Partners had invested $22.5 million in CSS in 2006, which involved picking up the stake from Baring Private Equity India and some through fresh issue. Then in 2007, CSS raised a $25 million in a round led by Goldman Sachs. Venture capital firm Sierra Ventures also holds a stake in CSS.

At the time it raised funding from Goldman, CSS brought all its group firms under one roof. These were Slashsupport, Synaptris and Ready Test Go.

The firm is being backed by its investors in its acquisition strategy. “SAIF will assist with evaluating potential acquisitions alongside CSS management,” said Ravi Adusumalli, Head of India investing at SAIF Partners. He also sits on the board of CSS.

Besides its global delivery center in India, CSS has centres in Philippines, Poland, Australia and the US. It could look at areas like Latin America.

A Nasscom-McKinsey study is forecasting the revenue of the Indian outsourcing industry to be at $60-62 billion by March 2011, as compared to $47 billion in FY2009. Areas like remote infrastructure management tech services will be a $13-15 billion opportunity by 2013, Nasscom has predicted.

The Indian IT/ITES services has taken a hit due the global economic meltdown, as many of them had most of their clients in BFSI (banking, financial services, insurance). Though hit, CSS has still managed to grow by 25% in FY08. Singh said. The impact has been less as clients are mainly technology firms and its services are non-discretionary in nature. While not disclosing the exact figure, Singh said the revenues in FY08 were a little south of $100 million.

But Singh expects the growth to be “subdued” this year. “Overall the economy slowed down, and that has impacted our ability to garner new clients and new businesses,” said Singh.

The acquisition would help CSS increase its revenues in an economy where new business is hard to come by. “The investment has performed well, but will require acquisitions to accelerate it's growth,” added Adusumalli.

Union Budget 09-10: Making A Case For Pass Through Benefits For VCs

Sahad P V — Thu, 02 Jul 2009 03:39:11 -0700

Realising the importance of venture capital funds in promoting the growth of high risk businesses, “pass-through taxation” regime for taxation of capital funds (VCFs) was introduced in 1995. However, the tax regime applicable to VCFs has undergone several amendments since its inception. A clear and stable tax environment, which is critical for the development of VCFs, is what the industry players expects from the Government during this Budget.

Section 10 (23FB) and 115U of the Income-tax Act, 1961 provides the framework for the taxation of VCFs. It envisages that any income earned by VCF from investments in Venture Capital Undertakings (VCU) is exempt from tax in the hands of VCF and the same is taxed on distribution in the hands of the investors in VCF. Thus, essentially it is a tax deferral benefit i.e. income is taxed if and when the same is distributed by VCF to investors.

In its current form, the pass-through benefit is restricted to income from investments in VCUs engaged only in specified sectors, which include biotechnology; information technology; nanotechnology and so on. However, the data on investments channelised through VCF suggests that significant investments have been made in sectors such as real estate, industrial products, media & entertainment, telecom, services and so on, which do not fall within the specified sectors.

Considering, the importance of VCF in these sectors as well and the need to provide impetus to the economy as a whole, there is an expectation to extend the VCF Tax regime to the investments in any unlisted VCUs, irrespective of the industry in which it operates.

VCFs are organised in the form of contributory trusts, where the trustees are the legal owner of the investments in VCU and the investors are the beneficiaries in the trust to the extent of the units held by them. Where VCF earns income from investments in VCUs engaged in non-specified sectors, such income is taxable in the hands of the trustees as representative assessee of the beneficiaries.

The scheme for taxation of trusts provides that in case of a discretionary trust, tax is levied at maximum marginal rate and in case of determinate trusts, income is taxable in the hands of the trustees in the like manner and to the same extent as in the hands of beneficiaries. As per the existing provisions, a trust is said to be determinate when the individual shares of the beneficiaries are expressly stated in the trust deed.

This creates complications since, in case of VCF, the names and share of beneficial interest of the unitholder may not be available as on the date of the execution of the trust deed and hence, it becomes a matter of legal interpretation that trust deed should be read along with the contribution agreement and other documents to ascertain the individual shares of the beneficiaries.

The taxation of determinate trust should be, in principle, based on the aggregate tax liability of each of the beneficiary considering their respective share in the income of VCF. For this purpose, if there are any losses in the hands of a beneficiary then the same should be set off against the share of income from VCF.

Also taxes deducted at source, if any, by VCUs on income distributed to VCF are also available as credit to the investor. However, there are various practical issues in achieving this.

VCFs pay significant amount as investment management fees to the investment manager. Since, VCFs hold investments as capital assets, the deduction is available only in respect of cost of acquisition and cost of improvement on transfer of capital asset.

Since a significant part of the management fees is paid for identifying, analysing and making the investments in VCU, an issue arises whether some portion of the management fees can be considered as a part of cost of acquisition of the shares acquired in VCU.

Although, VCF plays a pivotal role in development of the economy, it is still in its nascent stage in India as compared to the developed economies. Hence with a view to provide a clear and a stable tax incentive framework it will be useful to restore the “pass-through” framework of taxation to VCFs investing in any VCU regardless of the industry or sector. This will go a long way in flourishing VCFs in India.

(The authors are senior tax professionals with Ernst & Young, India)

Reforms Needed To Return India To High Growth - Govt

Madhav Chanchani — Thu, 02 Jul 2009 02:13:22 -0700

India could see growth of around 7 percent this year and more in coming years if it makes sweeping reforms including the removal of fuel subsidies and accelerates infrastructure development, a government report said on Thursday.

The economic survey, prepared by the finance ministry, also said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

Its release comes days before the new government unveils its budget on Monday for the fiscal year ending March 2010. The government is widely expected to expand both the budget deficit and its borrowing to support economic growth.

But analysts said any actual reforms would likely be gradual and the report should be treated as a signal of intent.

"It is wrong to assume everything will be announced in the budget. It is the strategic intent, a clear roadmap. The market should take it positively," said Amitabh Chakraborty, president for equities at Religare Securities in Mumbai.

The partially convertible rupee was little changed at 47.85/86 after the survey release, while the yield on the most traded 2021 federal bond was steady at 7.19 percent. The 30-share BSE index edged higher but later surrendered the gains and was down 1 percent by early afternoon.

India's fiscal deficit ballooned to 6.2 percent in 2008-09 as the government unleashed stimulus spending to insulate the economy against the global downturn.

"It is heartening to see that the survey has seriously raised concerns on fiscal consolidation and gives confidence that the budget will see a good trigger for disinvestment and rationalization of fuel and fertilizers," said Rupa Rege Nitsure, chief economist at Bank of Baroda.

The finance ministry's snapshot of the economy was largely upbeat and said the outlook for a return to stronger growth was achievable if the government embraces reforms.

"India should be back on the new trend growth path of 8.5 to 9 percent per annum provided the critical policy and institutional bottlenecks are removed," the report said.

"It is therefore imperative that the government revisit the agenda for pending economic reforms in the first instance."

The Indian economy grew by 9 percent or more annually in the three years ended March 2008.

Also on Thursday, the government said the wholesale price index fell 1.3 percent in the year to June 20, compared with the previous week's annual decline of 1.14 percent, slightly smaller than analysts had forecast in a Reuters poll.

The annual inflation rate was 11.91 percent during the corresponding week of 2008.

REFORMS

While earlier reform calls from the finance ministry were blocked due to political opposition amid the previous government's power-sharing agreement with the left, prospects for liberalisation of the economy are brighter after the Congress party won a decisive election result in May.

The finance ministry's report called for a selldown in stakes of state-run companies to generate 250 billion rupees ($5.23 billion) annually, reform of fertiliser and food subsidies and an auction of third-generation mobile phone spectrum.

It also called for "greater urgency" to removing hurdles to investment in infrastructure.

While the Reserve Bank has slashed interest rates by 425 basis points since October to revive demand, real rates remain high and continue to act as a brake on loan growth.

"The expectation that there could be further cuts in policy rates and in lending rates may have resulted in investment decisions being deferred," the report said.

It also called for implementation of a goods and services tax by April 2010 to maximise revenues and simplify the tax regime.

The report said government should take advantage of the recent low price in oil costs to free petrol and diesel prices.

Late on Wednesday, India unexpectedly raised gasoline and diesel prices by as much as 10 percent, passing onto consumers some of the recent rise in global oil prices.

The finance ministry urged other steps to improve the investment climate including an increase in foreign investment caps in insurance to 49 percent from 26 percent. It also called for allowing foreign investment in multi-brand retail, starting with food retailing, and urged the removal of price controls on sugar and fertilisers.

Indian Cleantech Companies Raised a Total of $131 Million Last Quarter

Madhav Chanchani — Thu, 02 Jul 2009 02:44:05 -0700

The Cleantech Group along with Deloitte has released preliminary Q2 09 (April-June 2009) results for clean technology venture investments in North America, Europe, China and India, totaling $1.2 billion across 94 companies. The report also says that India accounted for 11% of the total $1.2 billion cleantech investements made this quarter. North America accounted for 66%, while Europe and Israel accounted for 21% and China for 1%.

The report says that Q2 09 total investments are up by 12% as compared to the previous quarter, however, they have declined by 44% from the same quarter last year. The average round size in Q2 09 was $12.9 million which has gone up from $12.3 million in Q1 09.

"Cleantech venture investment has rebounded moderately after free-falling for two consecutive quarters. We are seeing initial signs of recovery in other cleantech asset classes, including recent activity in solar tax equity, increased M&A levels, as well as billions in government stimulus that are being allocated globally to the cleantech sector over the next several quarters," said Brian Fan, senior director of research, Cleantech Group.

The report further says that, Indian cleantech companies raised a total of $131 million in seven investment rounds (of which one deal amount was not disclosed).

The total cleantech investments in India this quarter have gone up by 167% as compared to the previous quarter (January-March 2009). These investments have also increased by 161% as companred with the cleantech investments that were made in India in the same quarter last year.

The country’s largest cleantech deal in the quarter was the Ramky Enviro Engineers’ (REEL) deal in which the company raised $42 million (Rs 200 crore) form Standard Chartered IL&FS Asia Infrastructure Growth Fund, early last month. The private equity fund had bought a minority stake of less than 5% in REEL. REEL is a Hyderabad based waste management company and is a part of the Rs 2,500 crore Ramky Group.

Also, in the last quarter, the most active cleantech investor in the country was IL&FS (Infrastructure Leasing and Financial Services Limited), which invested in two deals. While Ramky Enviro Engineers was one of its investments in the quarter, it also invested around $7 million (Rs 36 crore) in renewable energy company Shalivahana Green Energy Limited (SGEL). Axis Private Equity had also invested $11 million (Rs 54 crore) in SGEL along with IL&FS.

In another cleantech deal in India, solar power firm Cobol Technologies (owned by Deepak and Ratul Puri of Moser Baer), raised $30 million (Rs 151 crore) from the Bermuda-based mid-sized fund house Pangea Capital. The funding was raised in April this year.

In May, electrical energy storage platform developer Deeya Energy Inc raised series C funding of $30 million from Technology Partners, BlueRun Ventures, Draper Fisher Jurvetson, Element Partners and New Enterprise Associates. The funding was led by Technology Partners.

According to the report, the sector that led the cleantech investments in the quarter was the transportation sector, specifically, vehicles, biofuels and advanced batteries. The investments in the segments reflect the attention on the automotive sector and significant government stimulus.

The Solar sector, however, saw its lowest level of investment in the last three years, with only $114 million investments going into the sector. The investments in the solar sector have gone down from a high of $1.2 billion in 3Q 08. The decline in the investments in the sector is largely because most investors, whose portfolios contain significant solar holdings, did not increase their exposure.

“While venture investment in solar is down dramatically, utility investment in cleantech is up. Solar thermal was the leading energy source procured through power purchase agreements in the first half of 2009,” said Scott Smith, U.S. leader of Deloitte's Cleantech practice.

The Cleantech Group accelerates the development and market adoption of clean technologies globally. The company has a global network of investors, entrepreneurs, enterprises, service providers and others. The network receives access to capital, investment deal flow, networking, market leading research and data, sales leads and promotional opportunities.

The Group also provides advisory services for large corporations and governments, publishes cleantech sector industry news coverage and produces the Cleantech Forum events across the globe.

News Roundup: Big TV, Carlyle in Talks to Raise $50-100 Million

Ruchika Sharma — Wed, 01 Jul 2009 22:09:40 -0700

Tech M Now Has 42% Stake in Satyam - On the conclusion of the mandatory open offer to shareholders of Satyam Computers, the new owner, Tech Mahindra, has a little over 42 per cent stake in the company, as against the original plan of acquiring a total of 51 per cent of the equity. The response to the open offer for 20 per cent of Satyam shares - TM had earlier bought 31 per cent by outbidding others - was poor, as the secondary market price was well above Rs 70 per share during the period of open offer (between June 12 and July 1), where the price laid down was Rs 58 per share. (Business Standard)

Govt Defers Decision on UB's Proposal to Raise Rs 708 Crore - The government has deferred its decision on UB Group’s proposal for raising Rs 708 crore by issuing convertible warrants to FirStart Inc, on the recommendation of Foreign Investment Promotion Board (FIPB). According to sources, FIPB had deferred decision on the proposal at its meeting on June 19, saying the Department of Revenue (DoR) had not supported it and DIPP was still examining it. (Business Standard)

Big TV, Carlyle in Talks to Raise $50-100 Million - Big TV, the Anil Ambani group’s direct-to-home services provider, is in final stages of negotiations with Carlyle Group, the global private equity major, to raise around $50-100 million (Rs 240-Rs 480 crore). This is part of the company’s plan to raise $200 million (Rs 960 crore) mainly through equity, for which it has appointed Deutsche Bank as the lead arranger. The DTH service provider intends to use the proceeds for corporate purposes, including expansion of services. (Business Standard)

SpiceJet Appoints Seema Chandra as CFO - SpiceJet has announced the appointment of Seema Chandra as Chief Financial Officer with effect from July 1. Seema brings with her over 25 years of solid, stable work experience, having worked with various corporates including HT Media, Nestle India and Ranbaxy. Her last assignment was as CFO of Mascon Global. (Business Standard)

City Union Bank to Raise Rs 300 Crore Via QIP - The board of directors of Kumbakonam-based City Union Bank (CUB), at its meeting held on June 30, 2009, gave its approval to raise 300 crore through QIP. The money will be used to fund its expansion plan and to increase the networth to Rs 1,000 crore over the next two years. The old generation private bank based in Tamil Nadu is planning to open 70 branches of which 50 per cent would come up in southern states. Currently, it has a branch network of 208. (Business Standard)

ICICI Puts Rs 200 Crore Realty on Sale - ICICI Bank is selling a clutch of commercial and residential properties. The space, totalling 1.39 lakh sq ft, is spread across Mumbai, starting with a 6,800 sq ft commercial space in Apeejay House, Fort. Brokers value the total property at over Rs 200 crore. The biggest chunk is the 65,845 sq ft 'A' wing building of Mafatlal Chambers at N M Joshi Marg in Lower Parel. Another 31,773 sq ft in the basement and third floor of the 'B' wing of the same building has also been put on the block. Also for sale are 32 residential flats in Sundaram-I, Raheja Complex in Malad East, totalling 26,660 sq ft built-up area. (DNA Money)

Quatrro Eyes Stake Sale, Seeks FIPB Clearance - Quatrro BPO Solutions has filed an application to the Foreign Investment Promotion Board (FIPB) for issuing shares to raise funds. Quatrro has been looking to raise around $300-400 million to add to its war chest for acquisitions in verticals such as legal, healthcare and insurance. It has already lined up, and has commitment of, about $300 million from investors, which can be increased depending on the target company. It is also close to finalising an acquisition valued at more than $100 million. (DNA Money)

DE Shaw May Exit 60% in DLF Assets - US-based private equity investor D E Shaw is looking to sell only 60% of its investments in DLF Assets (DAL), the company floated by the promoters of DLF Ltd, according to sources familiar with the deal.Shaw had invested $400 million as convertible preference shares into DAL in 2007 with assurances from the developer of a public listing in 2008.However, with the worldwide real estate market collapsing in 2008, the investor negotiated with the cash-strapped DLF promoters to provide them an exit route. (DNA Money)

JSW Group May Revive IPO Plans - The JSW group may revive its initial public offering (IPO) plans for its two companies, JSW Cement and JSW Energy. The group is reworking on draft red herring prospectuses (DRHPs) and may hit the market in a year. JSW Energy is looking to raise Rs 5,000 crore from the stock market to fund its Rs 12,000 crore, 4000 mw power plant projects. (DNA Money)

Tech Mahindra To Go For Preferential Allotment in Satyam

Madhav Chanchani — Wed, 01 Jul 2009 23:51:53 -0700

Tech Mahindra will pick new shares of Satyam Computers through another preferential allotment after getting a tepid response, as anticipated, to its open offer to acquire 20% from existing shareholders.

The open offer which was made at a price of Rs 58 a piece was much less than the ruling stock price which hovered above Rs 70 during the period of open offer. The offer was open between June 12 and July 1. Tech Mahindra said it would disclose the actual additional stake bought in the open offer on July 8.

The IT firm which has earlier picked 31% stake in Satyam as per the deal struck in April, now has the option of subscribing to new shares of Satyam. As per the original purchase condition, if Tech Mahindra didn’t get enough shares to hike its stake up to 51% through the open offer, it could fall back on another preferential allotment.

Tech Mahindra had earlier acquired 302.76 million shares or 31% stake for Rs 1,756 crore. It had then come up with a mandatory open offer to buy 199 million shares(20% stake) from existing shareholders for Rs 1,154.7 crore, translating into total acquisition cost of Rs 2910.7 crore.

The poor response to the open offer will benefit Satyam as a company. This is because the same money will be used to strengthen the balance sheet of the scandal hit IT firm, instead of paying off shareholders.