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June 29th - July 4th, 2015

Sebi moveS againSt money laundering in liSted SmeS

imPaCt oF greeCe debt CriSiS

The Securities and Exchange Board of India (Sebi) has moved against four companies listed on a special platform

created for fund-raising by small and medium enterprises (SMEs). Sebi’s investigations have revealed certain entities manipulated the share price of these companies to launder money. The regulator has barred a total of 239 persons / entities, including the four companies, from accessing the market. The four companies are Eco Friendly Food Processing Park Limited, Esteem Bio Organic Food Processing Limited, HPC Biosciences Limited, and Channel Nine Entertainment Limited. The first three are involved in agricultural businesses, while the fourth is a production and distribution company for serials, films and events. The companies were listed on the BSE between January and March 2013. “I am of the considered view that the schemes, plan, device and artifice employed in this case, apart from being a possible case of money-laundering or tax evasion, which could be seen by the concerned law enforcement agencies separately, is prima facie also a fraud in the securities market,” said the Sebi order. Entities bid up the shares of the companies to convert black money into white, according to the Sebi order. The total profit earned by the entities involved is pegged at Rs. 468.99 crore. The ban comes into force with immediate effect. The barred

Source: Business Standard June30, 2015

UJJVALJAUHARI The mounting Greek crisis and the uncertainty it brings, have turned the Street cautious and led to markets’

fall. Although markets recovered a significant part of the losses as the day ended, companies with visible exposure to Europe saw their share prices fall sharply.

Some of these stocks were already under pressure last week, when the possible exit of Greece was being discussed. They lost between one and six per cent (a few ended flat) of their value on Monday.

“The extent to which the markets can correct cannot be gauged looking at the multiple risks that are involved,” says Mayuresh Joshi at Angel Broking, who believes the flight towards the dollar and precious metals might be there till the clarity on the Greece matter comes through, keeping equity markets volatile.

Nilesh Shah, managing director at Kotak Mutual Fund, says certain stocks in IT, pharma and auto ancillaries having significant exposure to Europe will underperform. Since Greece issue is well known for some time, it is unlikely to cause as much correction as in the 2008 Global Crisis, said Shah. From India’s point of view, our markets would witness a little lower volatility than peers as we are least impacted from the unfolding events in Greece and EU, he added.

Anil Sarin, executive vice-president at Edelweiss Global Asset Management, echoes a similar view. He says the impact on Indian equities market will be limited and the correction offers good entry opportunities for investors.

Nevertheless, for now, while the broader market will be under pressure, among the stocks that could see more heat would be companies with higher exposure to Europe. HCL Tech generates about a third of its revenues from the European region and looking at the uncertainties in Europe as well as the currency headwinds, the stock could remain under pressure, say analysts.

Crompton Greaves (excluding the consumer business) has significant exposure to Belgium and other parts of Europe. After the acquisition of the Belgium-based Pauwels Trafo/Pauwels Group in May 2005, the company had acquired GANZ (Hungary), Microsol (Ireland), ZIV (Spain) and Sonomatra (France). These acquisitions had pushed the company into the league of the top electrical companies in the world. However, significant exposure to Europe has brought

pressure on the company’s stock price.

Havells is another stock to watch, according to analysts looking primarily at translation impact of currency due to its Sylvania operations. The impact on earnings, however, might not be meaningful due to lower profit contribution in the overseas business, say analysts.

Cox & Kings, too, was under the spotlight as a significant part of the Ebitda (earnings before interest, tax, depreciation and amortisation) it generates is from the UK travel and education business. The stock that had been trending down for more than a month fell 11.6 per cent intra-day but closed 5.6 per cent lower at Rs.236.20 on Monday.

Among auto ancillary companies have exposure to Europe like Motherson Sumi and Bharat Forge. Companies like Motherson Sumi and Bharat Forge are the ones that can see risks increase with the European crisis deepening, says Joshi. Bharat Forge derives about 25 per cent of its revenues from exports to Europe.

Besides, pharma and tech players that export to Europe are likely to feel the pressure. This includes Dr Reddy’s and Aurobindo — the latter had acquired Actavis to consolidate European business.

Besides, Jubilant Life Science’s licensed chemical business, Dr Reddy’s and Lupin’s German business can see some pressure, says Surjit Pal at Prabhudas Lilladher, who believes that the impact will be seen only in the second quarter of 2015-16.

Though pharma companies have so far made up for the cross currency headwinds through strong US growth, revenue growth would be much higher if Europe also contributed well.

India VIX jumps most in 7 weeks Country’s benchmark gauge of option costs jumped the most in seven weeks as stocks declined amid concern Greece will leave the euro region. Demand for protection against swings in Infosys surged to a two-month high. The India VIX Index rallied 9.8 per cent to 17.30 at the close in Mumbai Monday, the steepest gain since May 12. The CNX Nifty index fell 0.8 percent to 8,318.40, its biggest drop in two weeks. BLOOMBERG

Source: Business Standard June 30, 2015

Motherson suMi, Bharat Forge, havells, Cox & Kings and hCl teCh Fall up to 6%

December 21 - December 26, 2015CAPITAL ADVISORS PVT. LTD.

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November 09 - November 14, 2015CAPITAL ADVISORS PVT. LTD.

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Fund-raiSing through QiPS hitS 19-month low

PeS Show PreFerenCe For Controlled dealS

One firm mObilises mOney via rOute in this quarter, cOmpared tO 12 a year agOThe fall of markets from their peak levels earlier this year, and the range bound movement since then, has not only dampened investor sentiment, but has also kept companies at bay from raising funds via the qualified institutional placement (QIP) route over the past few months, which hit a 19-month low in November.

(QIP is a process to enable listed companies to raise finance through the issue of securities to qualified institutional buyers.)

So far in the current quarter (October to December), only J Kumar Infraprojects raised `409 crore through the QIP route, compared to 12 companies that had mobilised `3,400 crore in the corresponding period last year. Not a single company has raised funds via the QIP route so far in November. During February April 2014, no company had used the QIP route.

So far in 2015, 28 firms raised `17,694 crore through QIP, which is 44 per cent lower compared to the corresponding period in 2014, when 29 companies had mobilised `31,025 crore. As many as 33 firms had raised `31,684 crore in the whole of 2014.

Analysts attribute this to volatile market conditions that have kept companies from raising funds through this route.

“Market conditions have turned for the worse in the past couple of months and many companies are not urgently looking to raise cash at lower valuations. That apart, many QIPs, over the past few years, have been by debt-laden companies looking to reduce their debt. While these were done at reasonable valuations, investors subscribed in the hope of an economic recovery led improvement in numbers for these companies, but have been let down so far. So, the appetite for funding such companies has

been lower,” said Aashish Somaiyaa, managing director and chief executive, Motilal Oswal AMC.

Negative returns

In the past one-and-a-half months, the S&P BSE Sensex has corrected one per cent and slipped 12 per cent from its peak in rch. As a result, most QIPs in 2015 have returned negative value, with 16 out of 28 trading below their offer price. “The secondary markets have lost considerable ground since their peak in March. That apart, a lot of investors have lost money in QIPs. These are the two main reasons why QIPs have failed to pick up this year. The road ahead depends on how the secondary markets play out. We need at least a 10 to 15 per cent rally from here for companies and investors to get attracted to QIPs,” said G Chokkalingam, founder and managing director of Equinomics Research & Advisory.

“A pick-up can happen in case any particular theme has a dream run, as was the case with the logistics sector a few months ago. So, either there is a broad-based rally that takes the markets higher, or there is a theme that does well, which will re-kindle appetite for fund-raising via the QIP route,” Chokkalingam adds.

Source: Business Standard 27 November, 2015

In a recent deal, US private equity (PE) firm KKR bought 70 per cent stake in investment bank Avendus. In two recent deals, Fairfax India Holdings picked up 71 per cent in speciality chemicals maker Adi Finches and 74 per cent in National Collateral Management Services. In August, Sequoia Capital bought a significant minority stake in Groupon India and re-branded it near buy.

The common factor in these deals is that they’re all ‘controlled transactions’, where the PE investor has acquired more than 51 per cent stake or is the largest investor in a company with significant minority stake. PEs, who have been living with minority stakes in Indian firms, are increasingly showing a preference for controlled deals in India, hoping for faster exits and better returns.

“Minority stakes may have worked out (in the past). But today, we have so much operating experience. With controlled deals, we can control

our destiny better and guide the outcomes (vision, implement strategy and exits) better,” Sanjay Nayar, member of KKR and chief executive officer (CEO) of KKR India, said in a recent interaction.

According to M K Sinha, managing partner and CEO of IDFC Alternatives, who has done a couple of controlled deals, such deals provide flexibility. “You can drive the operations the way you want; you are not dependent on someone else. You can take the company forward with greater control, ensure better governance and outcomes.”

This was evident in the PE firm’s exit from Green Infra, a company incubated by IDFC Alternatives, where a subsidiary of Singapore-based Sembacrop bought 60 per cent for $227 million. “We had the ability to control that sale. We were not dependent on a partner (read promoter) on when to exit,” says Sinha.

Globally, PEs do a buyout, turn around a company, and sell it. In India, they were forced to pick only minority stakes as Indian promoters were not willing to cede control. Minority stakes often meant limited say in operations and strategy, and in some cases, differences and disputes with promoters. ‘‘When you are in minority, what do you say? You had cases like Lilliput, where the promoter went crazy with stores,” says a PE manager, who doesn’t wish to be quoted on this.

The problem with minority stakes is the degree of control. ‘‘You are dependent on the majority shareholder for compliance, governance,’’ says Sinha. While a PE firm wants to exit in five, seven, or nine years, the promoter may have a different horizon for an initial public offering. “Minority stakes imposes a lot of restrictions for PEs to influence strategy and outcomes,” says Toshan Tamhane, partner, Mckinsey & Co.

INSIDER TRADING : NEw RulES coNfouND INDIA INc

Six months into the new insider trading regime, India Inc is still grappling with the strictures

and stipulations. The biggest grey area has been the dos and don’ts on price-sensitive information.

The Securities and Exchange Board of India (Sebi) now expects companies to adopt a ‘need to know’ strategy while communicating on key business issues. “While drafting these regulations, we want companies to themselves determine what needs to be communicated and what shouldn’t be,” said a regulatory official.

However, the regulatory intent has not been able to put across the message. Some in corporate circles and the legal fraternity are touting some of the stipulations in the insider trading code as too restrictive, leading to a virtual freeze in communication.

The Sebi insider trading code of 2015 has deemed close relatives, members of the board of directors and people connected with a decision (that is price-sensitive) as ‘connected persons’. The regulations bar any form of communication of such information by these people.

The bar on communication by itself without any trading or wrong committed has been brought in the new regulations. This restriction could even be unconstitutional. If a husband shares some information with his wife, and she does nothing

to misuse it, both would still fall afoul of the new rule. “If one were to analyse it from the perspective of criminal law jurisprudence, there is neither any intent nor any action to commit a wrong, yet an offense is caused,” said Sandeep Parekh, founder, Finsec Advisors.

Finding merit in the argument that the requirement is onerous, Arpinder Singh, partner at EY India, said actions of individuals would now come under greater scrutiny. The presumption of having utilised price-sensitive information to conduct trade would mean that actions of individuals would be open to greater scrutiny than before. The new regulations widen the definition of persons or individuals with access to unpublished price-sensitive information but legal experts feel legitimate communication should not be hampered. “An onerous requirement is now transferred to the individual who will have to establish that the price-sensitive information has not been misused,” said Singh.

Legal experts add that companies would need to maintain a record of information to refute any allegations of misuse of such information. “Organisations would now need to be far more diligent in identifying employees who might have access to unpublished and price-sensitive information, and ensure they do enough to sensitise these individuals on how to handle such information,” says Singh.

Another area of regulations that has been questioned is the due-diligence clause for deals that do not trigger an open offer of equity. The issue is that Sebi has outlined the treatment for deals that culminate but the regulator has been silent for deals that fail to happen.

Sometimes on the basis of unfavourable findings in the due diligence, intending acquirers do not proceed further with an acquisition. In this situation, the question arises as to what will happen to the “unpublished price-sensitive information” that has been shared with the potential acquirer in such an aborted transaction.

“There is a protection given to some deals (open-offer related). However, it does not mean conversely that if a deal is of a non takeover type or if a takeover deal is not fructified, that the sharing of information would automatically be considered illegitimate,” said Parekh. Having said that, it is important to share information in a due-diligence process with care, so that there is no allegation of preferential treatment of information that has the possibility of getting misused, he adds.

An official with the market regulator adds that the regulations lay greater emphasis on companies adopting best practices. “The regulations cannot be wished away and corporates would need to work with these,” he said.

Some do agree with the market regulator’s view. “Businesses outside India have developed risk intelligence in their business conduct and adopted due-diligence practices to facilitate legitimate business practices within the regulatory purview,” said Anurag Jain at Thomson Reuters India. These aspects of regulations are in line with global best practices and corporate India will have to learn to live with these, he felt.

Source: Business Standard 21 December, 2015

ThERE hAS bEEN A vIRTuAl fREEzE IN commuNIcATIoN whEN IT comES To pRIcE-SENSITIvE INfoRmATIoN uNDER ThE chANGED RulES

RbI SETS up hElplINE foR STARTupS oN fuND-RAISING

With startups raising funds from a variety of offshore sources, including

individuals, private equity players and crowd sourcing, the RBI has set up a dedicated helpline for advice on cross-border remittances which are subject to guidelines issued under the foreign exchange management act.

Although businesses are supposed to know the law before they raise capital, many of the startups are being promoted by very young and inexperienced individuals. Moreover, the amount raised by some of them run into only a few lakhs, making it difficult for them to hire law firms.

The helpline is actually an email ID ([email protected]) through which RBI will respond to queries. The central bank said that it will offer guidance assistance to them for undertaking cross-border transactions within the ambit of the regulatory framework.

“The enterprises should provide complete information to the RBI and mention he specific issues on which they need guidance. “

Source: The Times of India 23 December, 2015






























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SEbI bRINGS IN cAvEAT oN STock ExchANGE lISTING EntitiEs with 15% stakE in an ExchangE can’t list on it; thosE with such stakEs to bE rEfErrEd to as associatE

The recently amended regulations for listing of stock exchanges will bar an entity

from trading and being listed on a stock exchange if it holds a 15 per cent stake in it.

According to board minutes released by the Securities and Exchange Board of India (Sebi), the entity with such a substantial stake would be considered an associate of the exchange.

“Companies which share common directors with that of a stock exchange or any of its subsidiaries, or who hold 15 per cent of the equity share capital of a stock exchange would not be permitted to list on the same stock exchange,” said Sebi in the board note.

This means that if any board member of the listed exchange is

also on the board of a listed entity then the entity would not be able to trade on it. Else, the board member would have to give up his/her position on the board of the company or exchange.

This was a part of the initial Securities Exchange and Clearing Corporations (SECC) regulations because of which Keki Mistry of HDFC Securities had to give up his position on the board of BSE ltd.

Another important criterion that was making it difficult for stock exchanges to list was the examination of the ‘fit and proper’ criteria of shareholders. Sebi has allowed shareholders to issue a self declaration of their fitness status.

“During the allotment process, each applicant would be required to provide self declaration…In

the post listing scenario, each shareholder shall submit quarterly an undertaking to confirm that they are fit and proper,” said Sebi.

For instance, if a shareholder is found not to be ‘fit and proper’

as per the regulations then the shareholder would be asked to divest its stake within a time period. In the interim the shareholding of the holder would be frozen.

According to Sebi regulations, a fit and proper person is defined as someone with financial integrity, good reputation and has not faced any criminal or winding up regulatory orders.

“Ensuring that every shareholder of a stock exchange is fit and proper is to avoid any systemic risk. However, any such risk would arise if a shareholder with substantial

shareholding is found to be not ‘fit’. It would have served better if Sebi had provided a threshold for examination of shareholders. Examining every retail shareholder with small holding would be a compliance hurdle and lead to unnecessary paper work,” said Tejesh Chitlangi, Partner, IC Legal.

An email sent to BSE and MSEI remained unanswered till the time of going to print.

NSE in a specific query by Business Standard stated that it was too early to comment, but they would adhere to the regulations.

If an entity acquires between two and five per cent stake, then the exchange would be required to seek approval from Sebi. Above five per cent, Sebi would clear all stakeholders and prior approval would be needed. If any entity ends up taking above the limit cleared by the regulator, then the additional shareholding, voting rights will be capped.


Investors may be gung-ho about equities but many have seen an erosion in the value of their

holdings in the stock markets during 2015.

The number of demat accounts with share depositories NSDL and CDSL increased by 14.1 lakh in 11 months to about 2.45 crore at the end of November, a TEP TEP 5.75% increase. But PERIO the value of their holdings dropped by `Nov-15 19,830 crore to about Jan-15 `1.31lakh crore, data with NSDL, CDSL and market regulator SEBI showed. In fact, the value of investor holdings in NSDL, the largest share depository in the country, fell by

`16,601 crore while it declined by `3,229 crore in CDSL in the past 11 months, data showed.

With the markets remaining volatile after hitting new highs, investors, despite the increase in their appetite for equities, have not been able to generate wealth out of their holdings. After crossing the 30,000-mark for the first time ever in March this year, the stock markets have been on a roller-coaster ride. The benchmark sensex has been hovering around the 25,600-mark now. “The markets have also bounced back after almost every fall since 2008,” said G Chokkalingam, founder and MD,

Equinomics Research and Advisory. “There is still a lot of hope among retail investors,” he says.

“The year 2014 was a blockbuster one for equity markets. So, it created a lot of interest in equity markets,” said Vikram Dhawan, director, Equentis Capital. “But there has been a lot of volatility in the markets this year. It has been a disappointing year for equities.” he added.

Most broad-based indices have not given positive returns for investors in 2015.

While the sensex has lost about 7% so far in 2015 for egs (till December

22), the S (`in Cr.) Nifty has declined 6% during the period.SL Even the broad-based, 782 BSE-200 and BSE-500, 011 L, SEBI indices are still in the red with the BSE-Bankex being the worst hit, slumping by nearly 11%.

In contrast, the sensex gave nearly 30% returns while the nifty surged 31.4% du ring 2014, the best showing in seven years. Only the small-cap and mid-cap indices and the BSE-healthcare index have managed to give decent returns for investors so far in 2015.


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fuND-RAISING vIA pREfERENTIAl ISSuE AT 5-yEAR hIGhFund mobilisation through

preferential allotments by companies has hit a five-

year high. India Inc, including public sector banks (PSBs), has raised ` 45,209 crore by issuing equity shares to promoters and shareholders on preferential basis in the first 11 months of calendar year 2015 (CY15).

By comparison, companies had raised ~29,212 crore via preferential issues in CY14; `44,836 crore in CY13; `38,276 crore in CY12 and `27,161 crore in CY11, data available with the National Stock Exchange (NSE) show.

The surge comes on the back of fund infusion by the government in PSBs. A total of 17 PSBs have raised `30,822 crore, or 68 per cent, of the total amount raised during the CY. In 2014, 20 PSBs had raised `18,617 crore via preferential route, data suggests.

“There is some spurt in activities related to preferential allotment in the case of PSU banks — this is

again mainly on account of pressure on them to meet the capital adequacy in light of elevated NPAs (nonperforming assets),” points out G Chokkalingam, founder & managing director, Equinomics Research & Advisory.

Suzlon Energy, Reliance Communications, Prime Focus, GMR Infrastructure, Cholamandalam

Investment and Finance Company and Magma Fincorp are some of the private players that have raised over `500 crore through preferential issues, data show.

Among individual banks, State Bank India (SBI) raised `8,363 crore, followed by Bank of India (`3,097 crore), Bank of Baroda (`3,046 crore), Canara Bank (`3,037 crore), Punjab National Bank (`2,602 crore), Central Bank of India (`2,243 crore) and Indian Overseas Bank (`2,009 crore).

“Nearly ̀ 70,000 crore will come into banks kitty over a period of time. It is the government’s money with which they are re-capitalising the PSBs. According to the requirement and norms, PSBs would eventually require ̀ 1.75 lakh crore to capitalise themselves in the next three–four years. So, it is obvious that the first round of money will be put in by the government and subsequently they would be diluting the stake to global investors at a higher price,” said Deven Choksey, managing director and chief executive officer,

K R Choksey Shares and Securities.

Despite capital infusion by the government in PSBs, analysts remain worried about the high NPLs plaguing these banks. Bad loans at listed state-run banks swelled in the September quarter, analysts say, as many borrowers who had previously secured easier repayment terms failed to pay interest.

According to reports, 60 per cent of state-run banks’ average NPA stock has been overdue for one year or more, putting these assets in the doubtful category where recoveries are considered difficult. As asset quality pressures moderate, growth revival remains a key challenge for the sector – especially PSBs.


mATRImoNy.com, QuIckhEAl GET NoD foR Ipos; mAy RAISE `1,000 cR

ASSESS fIIs foR mAT uNDER NEw NoRmS: cbDT

Matrimony.com, which operates under B h a r a t M a t r i m o n y

brand, and Quick Heal Technologies have received the Securities and Exchange Board of India (Sebi) approval to launch their initial public offers (IPOs) and may raise around `1,000 crore. Matrimony.com had filed its Draft Red Herring Prospectus (DRHP), with Sebi in August, while Quick Heal had submitted its draft documents in September. Sebi cleared the proposed initial share sales and gave final observations on the IPOs on December 18.

According to the draft paper, Matrimony.com’s IPO comprises

fresh issue of equity shares worth `350 crore and an offer for sale of up to 1.66 million scrips by existing shareholders. The existing investors include Bessemer India Capital Holdings, Draper Investment Company LLC, Hartenbaum Revocable Trust and Indrani Janakiraman. PRESS TRUST OF INDIA


In a bid to end uncertainty over applicability of MAT on FIIs and foreign companies, CBDT on

Wednesday asked its field officers to complete the pending assessments in light of the directions issued regarding inapplicability of the tax liability on such entities.

“The field authorities are hereby advised that pending assessments involving applicability of MAT on foreign companies (including FIIs and FPIs) should be completed in accordance with the decision of the government,“ the Central Board of Direct Taxes (CBDT) said in an instruction to field formations.

The government had earlier decided that Section 115JB of Income Tax with regard to levy of Minimum Alternate Tax (MAT) will not apply to foreign companies, foreign

institutional investors (FIIs) and foreign portfolio investors (FPIs) and a requisite amendment would be made in the Finance Bill 2016.































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NSE’s SmE plATfoRm GAINS momENTum ThIS yEARThis has by far been the best

year for the SME platform, started by the country’s two

premier bourses about three years ago, to enable small and medium enterprises (SMEs) to list.

The National Stock Exchange of India’s (NSE) moribund SME platform finally gained traction this year, with the exchange adding 20 companies, of which five were listed on its Emerge platform through an initial public offering (IPO) and the rest on its Emerge-ITP platform, where companies are listed without an IPO. The exchange now has listed a total of 31 SMEs. BSE, on the other hand, added 38 companies this year, taking its total to 110 companies. In the next few months, the exchange plans to list another 15 SMEs on its platform.

“For us, the quality of listing is more important than numbers. From the very beginning we were more interested in building the right ecosystem first,” said Ravi Varanasi,

chief, business development, NSE.

Varanasi added the exchange was in talks with market participants to attract more SMEs. “At present, around 50 companies are at various stages of listing, which will happen in due course. It seems that the efforts of the last few years are being paid off now,” he said.

According to industry sources, the regulator has been putting pressure on the exchange to increase the number of its SME listings. NSE has maintained that the fewer listings on its platform is a result of stringent listing norms.

Ashishkumar Chauhan, managing director & CEO, BSE, in a recent interview to Business Standard, attributed the success of the BSE SME platform to market-making. “The SME platform is an investment, not a trading platform, so we are not banking on trades to sustain it. We are going for compulsory market-making and that has been one of the reasons for the platform’s success.”

The SME segment is still grappling with issues such as lack of liquidity and lacklustre institutional participation. “The segment needs a complete overhaul as there are hardly any qualified investors willing to put money into these companies,” said G Ganesh, founder, Inga Capital. “The stocks are traded among a select group, mostly promoters. You can’t get in and out at will,” he said.

According to experts, the need of the hour is to bring in priority investing from big institutional players and tweak the lot size to improve liquidity. The minimum lot size varies between `1 lakh and ` 2 lakh.

Institutional participation has not been absent altogether, though. For instance, Sidbi bought about four per cent of the IPO of Ashapura Intimates Fashion. Central Bank of India and Bank of Maharashtra have bought 2.26 per cent and 1.4 per cent, respectively, of the IPO of Opal Luxury Time Products.

Institutions such as ICICI Bank, State Bank of India, Bank of Baroda, Bank of India and Union Bank of India have invested in Mitcon Consultancy & Engineering Services.


NSx RElAuNchES AImS To ShAkE up uS INDuSTRy

The National Stock Exchange (NSX) relaunched on Tuesday with a low-cost model its new

management says will challenge current sector practices and could save US investors billions if adopted market-wide.

NSX reopened as the 12th US stock exchange following a shutdown of more than a year and a half due to a lack of trading volume. It will charge 3 cents for every 100 shares it matches and will not charge anything for buy and sell orders posted there.

Most US exchanges charge 30 cents per 100 shares executed and provide rebates that can be more than 30 cents per 100 shares posted as an incentive for brokers to provide liquidity, aimed at making it easier for others to get trades done.

Exchange fees and rebates have been the subject of intense debate

in recent years. Many brokers, proprietary trading firms, and institutional investors say exchange fees, which subsidize rebates, are too high, forcing them to send their orders to cheaper, broker-run, private trading venues. Critics say the system creates conflicts of interest as brokers may seek the highest rebates for their clients’ orders rather than the best prices.

“We’re going to go out with an aggressive model which drastically lowers access fees and addresses these concerns about rebates,” NSX Chief Executive Mark Sulavka said in an interview.

The industry would save over $2 billion a year in exchange fees if the market as a whole were to adopt NSX’s fee model, and more than $1.5 billion a year in rebates would be removed, he said.

Exchange operator Nasdaq Inc lowered its fees and rebates for a number of stocks in a temporary experiment earlier this year and found it lost market share in those stocks as many trading firms sought higher rebates elsewhere. Jersey City, New Jersey based NSX, which first launched in 1885 as the Cincinnati Stock Exchange, also has a flat fee structure, unlike the tiered model used by most exchanges, and does not let

customers pay to co-locate their servers next to its matching engines to gain a speed advantage. NSX will compete against exchanges run by Nasdaq, BATS Global Markets, Intercontinental Exchange Inc, the Chicago Stock Exchange, and around 40 private trading platforms, including IEX Group.































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lENDERS DRIvE m&AS AT DEbT-lADEN cooS

About six months ago, a large Indian corporate with substantial debt on its books

had several rounds of discussions with a few suitors to sell certain assets. The discussions, however, never materialized into anything concrete, making one of the suitors lament that the promoters were never serious about selling the assets in the first place. The scenario, however, changed after the lenders to the corporate forced it to divest the assets as they wanted to contain the borrower’s soured loans.

Unlike in the past, where growth drove most merger and acquisition (M&A) deals, the strongest corporate trend in 2015 revolved around debt triggered transactions as banks pulled the plug on short-term funding for highly leveraged companies under pressure from the Reserve Bank of India. The last few quarters, therefore, have seen a flurry of deals as overleveraged companies sought to reduce debt as they identify core areas of operations. JM Financial Asset Reconstruction, which owns a good portion of the debts of Hotel Leela venture, forced the hospitality chain to sell a couple of its properties to lighten its liabilities. Similarly, lenders to Lanco Infratech had initiated an asset disposal programme at the Hyderabad-

based company to ensure that they got their money back.

Other corporates such as Anil Ambani’s Reliance Group, Bharti, GMR, Jaypee, Videocon and Essar have either sold some of their business units or entered into sale contracts, highlighting their seriousness to reduce debt. Most of the M&A transactions happened in the infrastructure, telecom, power, construction and steel sectors and are expected to continue through 2016.

“In the last 18 months, companies have paid back around `10,000 crore against a lowly three-digit sum in the corresponding period in the previous year. Companies with high debt have been forced to sell and reduce financial liability as short-term funding by banks has dried up under pressure from the RBI,” said P Mukherjee, group executive, corporate relations and international business, Axis Bank.

High debt has been a result of expensive acquisitions as well as

huge investments made towards expansion of capacities and networks. Moreover, a slowing global economy leading to a fall in demand across most sectors has resulted in lower revenues, which in turn has reduced corporates’ capacity to service loans.

“We will have to sell more if the economy doesn’t improve,” said Manoj Gaur, chairman, Jaypee Group, which has already sold a host of assets to repay banks. Blaming the problems of his group on a bad economy and a prolonged period of policy paralysis, Gaur said the group has realized around `20,000 crore in the last 24 months.

The huge pile of debt, a ticking time bomb, has forced companies to identify their core business. “Markets were earlier lenient with companies that did not have a focus but there is now pressure on them to make strategic choices, “said Deepak Kapoor, chairman, PWC India.

The Reliance Group is selling its cement plants, road projects, telecom tower and optic fibre businesses to focus on defence and other core businesses. Divesting these businesses will fetch the group around `50,000 crore and thus significantly reduce the group’s total debt.


TAx TRIbuNAl DISmISSES 251 pENDING cASES AT oNE GoThe Ahmedabad bench of the

Income Tax Appellate Tribunal (ITAT) in its recent order has,

at one go, dismissed 251 pending appeal cases where the `tax effect’ was lower than `10 lakh. On similar lines, it further expects to dispose of another 1,500 pen ding appeals.

This order follows the instructions of the Central Board of Direct Taxes (CBDT) issued on December 10 to increase the threshold limits for filing appeals before the ITAT and courts. Appeals can be filed by the I-T department before the ITAT only if the `tax effect’ exceeds `10 lakh.

The `tax effect’, as defined in CBDT’s circular, means the difference between the tax on the total income assessed by the

I-T department and the tax that would have been charged if the total income of the taxpayer was reduced by the income relating to disputed issues. This tax-friendly instruction, which was aimed at cutting down litigation, also had retrospective applicability and applied to all pending cases. TOI was one of the first to report on this circular.

While the Ahmedabad bench of

the ITAT is the first to take such a step, other ITAT benches across the country are following suit, say tax professionals. The Chandigarh ITAT bench subsequently also passed similar disposal orders.

The Ahmedabad ITAT bench, comprising S S Godara, judicial member, and Pramod Kumar, accountant member, have lauded the CBDT’s circular. Their order states: “It is indeed heartening to note that in one stroke, the government has not only prevented, but withdrawn thousands of appeals before this tribunal and before high courts.“

The order adds: “We are sure this (i.e.: CBDT’s circular) will allow everyone to concentrate on really important work and contribute to speedier resolution of serious

and more important tax litigation. In an environment in which retrospectively was attached only to taxation and not to tax reliefs or concessions, such a paradigm shift in approach is unprecedented and possibly a game changing initiative heralding a new era in thought litigation management.“

However, at the same time, while disposing of the 251pending appeals, the Ahmedabad ITAT has given leeway to the tax officers to approach the ITAT in case there are any matters, inadvertently included in the bunch of appeals that were disposed of, where the tax effect exceeds `10 lakh. Such matters, even if disposed of, will be recalled.


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RAjAN RAISES bAD loAN woRRIES AS fIN SEcToR fAcES hIGhER RISk

Reserve Bank of India governor Raghuram Rajan has again flagged concerns over the

rising level of bad loans in Indian banks, pointing out that weak corporates with lower debt-servicing capacity may worsen the situation. The central bank is particularly worried about the financials of public sector banks, which are the worst among the lenders in terms of bad loans and capital.

In the Financial Stability Development Council (FSDC) report, Rajan has said that corporate sector vulnerabilities and the impact of their weak balance sheets on the financial system need closer monitoring. The report has called for an early passage of the bankruptcy bill to protect bank assets. “In the face of mounting potential losses, an early clearance of the proposed Insolvency and Bankruptcy Bill will also play an important role,” the RBI said. The report said that the RBI’s banking stability indicator shows that risks to the banking sector have increased since the publication of the previous financial stability report due to rising bad loans and sluggish profits.

Public sector banks continued to record the highest level of stressed assets at 14.1% of their

loans as against 4.6% for private banks and 3.4% for foreign banks. Stressed assets include bad loans (gross non-per forming assets) and restructured assets (loans where stressed borrowers have been given more time to meet obligations) PSBs are being squeezed between rising bad loans and lower earnings on one side, and shortage of capital and burden of obligations

toward financial inclusion on the other. “If the inherent strengths of PSBs, in terms of their reach and experience in delivering banking services to a larger geographical and demographical domain are to be used, their efforts should be suitably compensated on commercial considerations, “the RBI said.

Five sub-sectors -mining, iron & steel, textiles, infrastructure and

aviation -together constituted 24.2% of the total loans of banks and account for 53% of stressed advances. Stressed advances in the aviation industry rose to 61% in June 2015 from 58.9% in March, while stressed advances of the infrastructure sector increased to 24% from 22.9%.

While observing that India is better placed compared to emerging market peers due to lower commodity prices and prudent policy measures, the RBI has said that the government needs to factor in future Fed action and developments in China in policymaking.

On the macro front, the RBI has said that falling exports are a concern amid global developments such as the Trans Pacific Partnership, as also the depreciation of the renminbi.


Disclaimer: All data and information is compilation of collective news, provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath Capital Advisors nor any of its group company, directors, or employees shall be liable for any of the data or content provided for any actions taken in reliance thereon.

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