Indian Economy (Minor Issues)
MTN rings Anil for merger with RCOM
- With the rapprochement between the two Ambani brothers making headlines all over the world, MTN is reported to be considering in its board meeting, as early as today, a merger with RCOM.
- MTN is a South Africa based telecom giant with interests in Africa. Currently, South Africa’s Public Investment Body holds 18% in MTN, Lebanon’s Mikati family holds 10, while the rest is owned by institutional and individual investors.
- In 2008 also there were merger talks between MTN and Anil Ambani. But they came to a naught with the elder brother Mukesh saying that he has the first right of refusal over RCOM and hence MTN cannot be acquiring any stake in RCOM without his refusal.
- MTN has proved to be the runaway bride for many. So far, the company has entered into nine negotiations with a stated objective to sell out.
- The last among them was Bharti Airtel. The proposed $24-billion transaction would have seen Bharti acquire a 49% stake in MTN while the South African company and its shareholders would have purchased 36% of Bharti. The deal would have created a telecom giant with the third-highest subscribers of any wireless carrier in the world.
- If the RCOM and MTN join hands, the combined entity would have annual revenues of approximately $13.4 billion, with earnings before interest, tax, depreciation and amortisation of $7.7 billion. The two would also have 218 million subscribers, putting it among the top five companies around the world.
GDP grew at 7.4% in FY 2010
- Indian economy expanded at a better-than-expected 7.4% in 2009-10, helped by strong growth in manufacturing and agriculture that lifted fourth quarter numbers, but faces global headwinds as it pushes for 8.5% growth in the current fiscal year.
- The country’s gross domestic output grew by 8.7% in the fourth fiscal quarter as agriculture grew 0.7% and manufacturing cruised at 16.3%, data released on Monday showed.
- The numbers emboldened finance minister Pranab Mukherjee to say the economy would grow by more than 8.5% in the current year. But his optimism is not shared by many others.
- In the three months to March 2010, gross fixed capital formation—a measure of investment activity—grew 34.6% quarter-on-quarter, indicating that investments have begun to pick up. However, analysts suspect that these investments are largely by the government in infrastructure sectors and will like to see private players stepping in.
Criteria for starting a bank?
- Under the existing regulations, the initial minimum paid-up capital for a new bank should be Rs 200 crore and the promoter’s contribution shall be at least 40% of the paid-up capital of the bank at any point of time.
- The current laws state that an individual company or its subsidiaries can only hold a maximum of 10% stake in the proposed new bank.
Bharti wraps up Zain deal
- Bharti has reportedly closed the $9 bn purchase of the African operations of Kuwait’s Zain Telecom.
- This is India’s second biggest overseas deal after Tata Steel’s $13 bn purchase of Corus in 2007.
- The completion of the deal gives Bharti Airtel a firm foothold in a market that it has long coveted: two previous attempts to enter Africa with MTN, the continent’s largest phone firm, came to nought.
- Cash from the African operations will pay for the about $9-billion loan that Bharti has taken to fund the deal and will reportedly cost the company less than $200 million a year in interest payments.
- The combined entity will be the world’s fifth largest, with 180 million customers, 42 million of them in Africa.
On the importance of tackling inflation
- Inflation will be a nagging issue for India because: (a) We are a nation with a large population, which is underserved in terms of food, clothing, housing, etc, (b) Indian GDP is on the trajectory of high trend growth rate of over 8% and GDP per capita is growing at the rate of 7.5%. There is significantly high unsatiated demand at current level of economy, which is bound to rise significantly further as the GDP per capita increases. Hence, the managers of Indian economy have to address the issue of inflation with short-, medium- and long-term perspective.
Tribunals for economic disputes, offences likely
- The government plans to set up special dispute resolutions panels and courts to resolve economic offences and disputes, as it looks to make a clear distinction between cases of general and specialised nature.
- The proposal will now be discussed and finalised by the law ministry. It may require changes in existing legal framework.
- This initiative follows a suggestion made by the Prime Minister’s Council on Trade and Industry, which called for a special dispute resolution mechanism to administer all existing and future economic legislations.
Private funds flowing swiftly to infrastructure projects
- Private investments in India’s infrastructure projects crossed $25-billion mark in the first three quarters of 2009, as conducive government policies and liquidity in capital market opened the floodgates of corporate funds into the booming energy and transport sectors.
- An improved show by infrastructure industries helped India lead its South Asian neighbours in terms of economic performance, according to a World Bank report. India’s energy and transport sectors attracted 40% of total investment commitments worth a record $26 billion.
- Investment commitments to new infrastructure projects with private participation grew by 15% in 2009.
- This could be because of the country’s globally competitive manufacturing sector.
Basic about Pass through certificates
- A pass through certificate (PTC) is created on conversion of a loan to an investible debt instruments such as bonds and debentures. The PTC has features of any other debt instrument and earn a return to the investor. Such certificates are sold against an underlying security which is generally the loan that a bank converts into securities or bonds.
- In India, servicing of such PTCs is done by a special purpose vehicle (SPV) which is created by the issuer of such PTCs. The issuer is essentially a bank or an NBFC which benefits by converting loans to PTCs through what is known as securitisation as it generates further resources for the entity for further lending. The investor earns a fixed return like any other fixed income instrument.
RIL drawing up plans to foray into telecom space
- The board of Reliance Industries (RIL) is believed to have approved plans to enter the Indian telecommunications sector when the opportunity arises.
- India’s largest private sector company is expected to go for only the lucrative corporate bandwidth market, or the business of selling telecom and internet services to companies rather than individuals.
- It is likely that the company could unveil its intent to foray into telecom at its annual general meeting on June 18.
- The government is currently auctioning frequency spectrum for broadband wireless access, or WiMAX, a technology that speeds up internet access and RIL is likely to set up a special purpose vehicle (SPV) to acquire one of the winners.
- It is rare for a telecom company to sell only to companies, ignoring retail consumers. The only comparable initiative to what RIL seems interested in would be Tulip Telecom. But Tulip is small and has found it difficult to expand business beyond a point. Tulip offers companies wireless bandwidth solutions, including virtual private networks, on radio spectrum that is free for use. Only last month, the company announced plans to start its own overseas hubs for customers that required access globally.
- In the year ended March 2010, Tulip had revenues of Rs 1,967 crore with a net profit of Rs 275 crore. Yet, RIL’s entry into the market will set the cat among the pigeons for telecom operators. Already beleaguered by falling call rates in India, the sector can ill afford a sharp decline in leased-line rates and corporate client spends.
Broadband Wireless Airwaves auction touches record high
- The cost of pan-India broadband airwaves, which crossed Rs 12,000 crore after 14 days of bidding, has baffled analysts and stunned telecom companies participating in the auctions, many of whom concede that the price has become ‘highly irrational.’
- On Wednesday, the pan-India bid licence for BWA spectrum touched Rs 12,257 crore, after two weeks of auction, which translates into a revenue of Rs 36,772 crore for the government from the sale of three slots.
- The government had estimated to garner Rs 35,000 crore from both 3G and BWA auctions combined. This takes the total revenues for the government from 3G and BWA combined to over Rs 1 lakh crore.
No tax on retirement benefits under new draft code
- The revised draft Direct Taxes Code (DTC) proposes tax exemption on retirement benefits, the Public Provident Fund (PPF), the Government Provident Fund (GPF), the Recognised Provident Funds and the Employees Provident Fund and addresses important issues such as Minimum Alternate Tax (MAT).
- It also takes care of taxation of long-term savings, capital gains and housing loans.
- Also, a proposal to levy MAT on corporates based on their assets had been dropped. However, the DTC did not give any details on the Income-Tax structure such as the slabs or rates, which were provided in the first draft released in August 2009.
- “As of now, it is proposed to provide the EEE [exempt-exempt-exempt] method of taxation for GPF, PPF, the Employees Provident Fund and Recognised Provident Funds,” it said.
Courtesy: Dialogue India CAG Weekly By Om Prakash (Goldy sir)