Indian Stock Market News and Analysis

ICICI Bank, India's second largest commercial bank, has reported a 78 per cent increase in the level of its gross non-performing assets (NPAs) in its retail loan portfolio.

At the end of March 2008, the bank's gross NPA on home, auto, personal, credit cards, dealer financing and loans to developers touched Rs 5,552 crore as compared with Rs 3,114 crore at the end of 2006-07.

In its annual report, the bank attributed the increase to seasoning of loans, change in portfolio mix in favour of unsecured loans, such as personal loans and credit cards, and an increase in bad debts in rural markets.

Gross NPAs are bad debts for which banks do not make a provision. In case of public sector banks, the gross NPAs rose by 5 per cent to Rs 37,854.15 in the last financial year.

ICICI Bank, which was the most aggressive player in the retail banking arena, has decided to go slow on portfolio growth during the current financial year and will lower the growth rate estimates to 10-15 per cent.

The moderation started last year itself and the share of retail credit in the bank's overall portfolio fell to 58.6 per cent in 2007-08 as against 65.2 per cent in the previous year.

Home loans constituted nearly half the retail loan portfolio of the private bank, while the share of personal loans and credit cards was estimated at 10.7 per cent and 7.2 cent, respectively.

Most banks have been hit by higher delinquency levels in the retail portfolio. Citibank and State Bank of India have also seen higher defaults on their credit card portfolio. Citi Financial, a Citi India arm, is also facing up to bad debt pressure.

ICICI Bank said that at the end of 2007-08, retail loans constituted 71.8 per cent of the bank's overall gross NPAs at Rs 7,600 crore, as compared with Rs 4,200 crore in 2006-07.

The bank's net NPA rose 76 per cent to Rs 3,564 crore. As a proportion of advances, net NPAs at the end of March 2007 were estimated at 1.49 per cent as against 0.98 per cent during the previous financial year.

ICICI Bank said it had sold some of its stressed assets, including retail NPAs, to asset reconstruction companies. Aggregate investments by ICICI Bank in security receipts issued by the Asset Reconstruction Company (Arcil) were estimated at Rs 2,853 crore at the end of March 31 this year.

The net NPA of SBI rose by 41 per cent to Rs 7,424 crore. At the end of the last financial year, the net NPA to net advances ratio for SBI and the SBI group stood at 1.78 per cent and 1.43 per cent, respectively.

Reliance Money, the broking and distribution arm of Anil Dhirubhai Ambani Group, today launched a new company along with Bahrain based Riyada Consulting, marking its foray into Saudi Arabia.

“We already have our presence in Oman and Dubai and our presence in SA will further compliment our efforts to have a larger role in the region,” Reliance Money Director and CEO Sudip Bandyopadhyay said.

Reliance Money along with Riyada Consulting will launch a new company, Riyada Reliance Money, that would raise riyal 200 million (about Rs 238 crore) from Gulf Institutional investors by diluting stake, Reliance Money said in a statement.

RRM would be seeking local regulatory approvals for launching its operations and also raising funds for expanding its operations. “Reliance Money, however, will retain management control post any dilution,” Bandyopadhyay added.

“This new venture will launch a range of brand new set of services in Saudi Arabia offering a cost-effective and efficient platform to transact in financial instruments to investors,” Riyada Consulting President Shaikha Dheya Al Khalifa said.

The venture would be offering broking, corporate finance, investment banking, advisory, custody and asset management services in the local market

The company has presence in Oman, UAE and Hong Kong and plans to expand its operations in over 15 countries spread across Europe, North Africa, the Middle East and South East Asia by 2009.

OPaL IPO

ONGC Petro additions (OPaL), a joint venture between ONGC and Gujarat State Petroleum Corporation (GSPC), is planning to hit the capital market to mop up Rs 3,000-3,500 crore.

“We are aiming to raise at least 20 per cent of the Dahej project cost through the offering,” said a top ONGC official.

OPaL is setting up a Rs 12,500-crore petrochemical complex at Dahej in Gujarat, proposed to be funded through a debt-equity ratio of Rs 8,700 crore and Rs 3,800 crore, respectively.

“We aim to go public once we finalise our equity partners, which should happen in the next two to three months,” said the official.

ONGC holds 26 per cent controlling stake in OPaL, while GSPC holds 5 per cent. OPaL has roped in Rothschild and ABN Amro as investment partners for the issue.

Already, global companies such as Japan Polypropylene Corporation (JPP), a joint venture between Chisso and Mitubishi Chemical Corporation; LyondellBasell Industries, which is one of the world’s largest polymers, petrochemicals and fuel companies; Ineos group; Mitsubishi Chemicals and Mitsui are eyeing a stake in the project.

Petronet LNG, with whom the company is set to enter into a long-term gas supply contract, is likely to pick up 5 per cent stake in the project. ONGC is also in talks with oil and gas PSUs like Indian Oil Corporation.

Meanwhile, OPaL has floated a tender for its cracker unit, which involves over 80 per cent of the project cost.

Sources familiar with the development said two consortiums involving German industrial and medical gases giant the Linde Group, South Korea’s Samsung, India’s top engineering and construction firm Larsen & Toubro and Stone & Webster may compete in the bidding, which is by far one of the largest tenders floated by ONGC.

The petrochemical complex is expected to be ready by mid-2012.

Anil Ambani firm likely to reject offer; RCom-MTN merger may be delayed.

Reliance Industries Ltd (RIL) has invited Reliance Communications for “mutual conciliation prior to arbitration” on the dispute over the latter’s bid to sew up a merger deal with MTN.

However, RCom is unlikely to accept the offer, indicating a lengthy court battle ahead and a delay in the RCom-MTN merger. Meanwhile, RCom is also believed to have sought a two-three week extension to complete its exclusive talks with MTN and the due diligence process.

The process was slated to end on July 8.

RIL has sent the letter to RCom and MTN, in which details of the non-compete agreement, including the first right of refusal, has been mentioned.

When contacted, RCom executives said, “This is only a sign of RIL’s increasing desperation and frustration.” However, they did not confirm the receipt of the letter. RIL, which has been opposing the ongoing talks between RCom and MTN Group for a proposed merger, had earlier written to MTN and bankers claiming first right of refusal in case RCom shares change hands.

RIL cited the agreement signed at the time of the family settlement for the claims, which was denied by RCom.

RCom has sought a two-three week extension to complete the exclusive talks and the due diligence process. When contacted, both RCom and MTN Group executives declined to comment.

RCom had proposed a reverse merger, under which the South African company will offer 34 per cent stake to Anil Ambani who would remain as the largest shareholder in the company.

JP Morgan__01_07_08.pdf Firstsource Solutions — JP Morgan

india 3 g telecom.pdf.pdf India Telecom 3G Auction

ESPN STAR Sports (ESS) has bagged the exclusive broadcast rights to telecast FIFA’s international football events, including the 2010 FIFA World Cup, in the Indian Sub-Continent.

The deal is estimated at over $40 million. ESS edged out Ten Sports, owned by Dubai-based Taj Television, after a two-month long bidding process.

The deal gives ESS exclusive rights to show over 275 international football games, including the 2010 FIFA World Cup and the FIFA Confederations Cup, both to be held for the first time on the African soil in South Africa.

In addition, ESS will bring other premier FIFA World Cup events for men, women, youth, Futsal and Beach Soccer to fans in India, Pakistan, Sri Lanka, Bangladesh, Maldives, Bhutan and Nepal.

ESS managing director Manu Sawhney said, “We are extremely delighted to continue our partnership with FIFA with whom we share a very special relationship. This agreement is a testament to our commitment of building the game of football by presenting it in the most innovative and entertaining manner to millions of fans in the Indian Sub-Continent.”

ESPN Software India MD RC Venkateish said, “ESS has played a key role in propagating international soccer in India and the results have begun to show. Soccer viewership has shown a consistent increase. For instance, the reach of Barclays Premier League has grown at more than 40% per annum since 2005. The broadcast rights of over 275 international football games, including the 2010 FIFA World Cup, will ensure that Indian soccer enthusiasts continue to get world-class soccer action on their TV screens.”

The FIFA franchise has always been sought after by broadcasters, but one has never witnessed such a premium for the sport in the Indian Sub-Continent in the past. The FIFA World Cup 2006, for instance, fetched a measly $9 million while the World Cup in 2002 went for just $3 million.

The sudden rise in bids is attributed to the fact that soccer is gaining ground in India. ESPN Star had bagged the exclusive rights to telecast the championship in the Indian Sub-Continent in 2006 while Ten Sports was the official broadcaster in 2002.

Meanwhile, the UAE has won the rights to stage the 2009 and 2010 editions of the FIFA Club World Cup, beating Japan, Australia and Portugal.

Anil Ambani’s Reliance Communications (RCOM) may be examining alternative structures to bring about its proposed mega-combination with MTN.

RCOM, possibly in partnership with a sovereign wealth fund based in the Middle East, may directly buy a large equity stake in MTN, emerging as the single largest shareholder.

This is to avoid legal disputes that may arise from Reliance Industries’ (RIL) claims of right of first refusal (RoFR) if RCOM were to enter into a reverse merger with MTN.

Under the reverse merger route, MTN would have made an open offer for RCOM followed by a share swap between Reliance ADAG, promoters of RCOM, and MTN. ADAG would then have emerged as the single largest shareholder of MTN while RCOM will become subsidiary of MTN.

That plan has not been junked, but sources close to the development said RCOM is also examining the option of directly acquiring a 40% stake in MTN. A Middle East-based sovereign wealth fund could join hands with RCOM for the acquisition of the controlling stake in MTN. The name of the fund could not be ascertained.

Since the South African stock exchange rules require any acquirer to launch a tender offer if its holding crosses 35% stake in a company, RCOM intends to acquire a shade lower than the threshold limit. Subsequently, RCOM is looking at a ‘whitewash’ procedure under which MTN’s shareholders will be asked to vote to waive their right to a tender offer.

 If the shareholders agree, RCOM will scale up its stake to 40% in MTN. Otherwise, it will be contend with a stake just under 35%. However, RCOM will emerge as the single largest shareholder by far with its 35% stake. Newshelf 664, a trust, is currently the largest shareholder with its 13% stake.

A 35-40% stake would, however, mean there would be no consolidation of revenues and profits in RCOM’s books though there may be other synergies.

Industry officials said MTN could be valued at $35-40 billion against its ruling market capitalisation of nearly $30 billion for the transaction. So, RCOM will have to chip in $12-14 billion for the purchase of 35%. Its fund requirement will go up if the MTN shareholders allow it to acquire another 5% stake.

The transaction may be routed through a special purpose vehicle in which RCOM will hold majority control with the sovereign fund holding the remaining stake.

In addition to the foreign fund’s equity contribution, the SPV will raise debt to finance the deal. So, the pressure of funding the deal will be substantially reduced from RCOM’s balance sheet. An RCOM spokesperson declined to comment.

If the deal goes through in this form, it will be one of the largest overseas acquisitions by any Indian company. Tata Steel so far tops the list with its $12.9 billion purchase of the Anglo-Dutch steel maker Corus.

Interestingly, RCOM had entered into the discussions with MTN after the foreign telco refused to sell a majority stake to Bharti Airtel. A source close the development said MTN always wanted to combine the strength of the two companies.

 ”The new structure proposes that RCOM, instead of ADAG, will be the controlling shareholder of MTN. Both RCOM and MTN will enhance their partnership later. More importantly, this is the best option available under the changed circumstances,” he added.

‘Changed circumstances’ refers to RIL’s interpretation of a reverse merger of RCOM with MTN as ’sale’ of RCOM leading to RIL possibly attempting to exercise its claimed RoFR in RCOM. “It’s certain that Reliance Industries will take legal recourse if RCOM reaches a reverse merger with MTN. The new structure, if it goes through, will mean RCOM directly buying a controlling stake in MTN. This beyond the so-called RoFR claims,” the source added.

Sources said both the parties are expected to extend the 45-day exclusive merger talks (during which the two sides would not talk to anyone else), which is slated to expire on July 8, by a couple of weeks. The due diligence is likely to be over by this week.

Newshelf 664 is the largest shareholder of MTN with a 13.1% stake. The Beirut-based Mikati family holds a 10.2% while PIC has a 9.7% stake. The rest 67.1% is widely held.

Meanwhile, Fitch Ratings upgraded MTN’s national long-term rating to ‘AA-(zaf)’ from ‘A+(zaf)’ with a stable outlook, reflecting MTN’s position as a leading emerging market mobile telecommunications player following considerable operational growth and its proven ability to operate successfully in challenging environments.

Fitch said the rating is supported by strong cash flow generation, low leverage and strong liquidity position of MTN which has a subscriber base of over 116 million in 23 countries.

Bacardi, the world’s largest privately-held spirits company, is rejigging i= ts Breezer ready-to-drink (RTD) portfolio in India. This will also see Baca= rdi’s local arm contributing to a product innovation in the company’s globa= l offerings.

Bacardi Martini India Ltd (BMIL) is showing up with a colourless Breeze= r, Clear Lemon, which is being rolled into the market. For the first time, = Breezer will have colourless liquid in its portfolio.

It is believed= that some of Bacardi’s other markets like Thailand, for instance, have loo= ked at the possible introduction of Breezer Clear Lemon.

The move is indicative of Bacardi’s growing confidence in the domestic = RTD market, which made a tepid start few years ago, with several players op= ting out after the initial interest. Bacardi Breezer with 4.8% alcohol stre= ngth is solely driving RTD sales, with annualised volume of roughly 6.5-lak= h cases.

The introduction of Clear Lemon will also see Bacardi rejigging its RTD= portfolio in the country. While the three core flavours=97orange, lime and= cranberry=97stays, clear lemon is seen replacing Blueberry. Another flavou= r, Jamaican passion may have a cyclical market stint based on the pull fact= or.

“The launch of Clear Lemon is in keeping with the increasing popularity= of white spirits in India. We also did a consumer survey and realised the = Bacardi is usually associated with colour and that our younger consumers wo= uld like something colourless, hence the launch. It is a flavour that will = suit the Indian palette,” said BMIL marketing controller Gautam Gangoli.

BMIL is the 74:26 joint venture between Bacardi and their local partner= Gemini Distilleries in Mysore.

Although white spirits has a small b= ase, its growth has far outperformed the total spirits market in the last f= ew years. Last year, while the overall market grew 8-9%, the white spirits = market grew 35% and players say that the main competition today is not from= other brands but from other segments. “The consumer is not static today an= d prefers different spirits at different times.”

SEML-20080627-MOSL-RU-PG004.pdf GHFC-20080630-MOSL-RU-PG008.pdf