The cheques have come not a day too soon. Last month, financial institutions cleared the restructuring of two high profile projects in trouble: Essar Oil's 12-million tonne refinery in Gujarat, and BPL Mobile's cellular network in Maharashtra, Tamil Nadu, and Kerala. The Ruias of Essar and Rajiv Chandrasekhar of BPL have been sending missive after missive to financial institutions and the Finance Ministry for more than three years now. So why are the powers that be smiling on them now?

Blame it on the general elections, which could take place as early as February next year. When governments go to the polls, they usually get into a generous mood for various reasons. In the case of BPL, for example, the finance ministry is believed to have played a key role in ensuring financial closure, since Chandrasekhar took his appeal straight to the FM.

Expect more of corporate India's beleaguered promoters to follow suit, and get their ailing projects their second or third lease on life. And of corporates in distress, there is no dearth. For example, the Delhi-based Parasrampuria group's has defaulted on loans worth Rs 705 crore, and is currently a BIFR case. Then, there is SIEL, Mardia Chemicals, the Modern group, Mukand Steel, the Lloyds Group...all of whom need their loans to be restructured. Says a senior official with an FI: ''There is a host of companies clamouring for a bail-out package.''

The point, however, is, can any amount of restructuring guarantee viability of businesses hanging fire for years? Unlikely. Consider Essar Oil's 12-million tonne refinery. While international appraiser Uhde (part of the Thyssen group) appointed by the lenders has said that the project cost compares favourably with those of similar projects abroad, the fact remains that the Rs 2,000 crore cost runover makes every tonne of Essar's output that much more expensive. And should existing players like Reliance, Hindustan Petroleum Corporation Ltd or Indian Oil Corporation decide to meet the competition by slashing prices, the going may get a lot rougher for Essar. In any case, it will take another 24 months to complete the project, work on which had been two-thirds completed when cash-flow problems and a cyclone in Gujarat brought it to a grinding halt in 1998.

R. Chandrasekhar: North Block smiles

As for BPL Mobile, it may have lost out on precious time. Three years ago, it was one of India's hottest mobile telephony company. Today, it is a faltering one with 6 lakh subscribers in the states of Pondicherry, Tamil Nadu and Kerala. Rivals such as Bharti, Hutch, even late-entrant BSNL have forged ahead. And the entry of Reliance and Tata Teleservices with CDMA services has further skewed the pitch even for the bigger cellular players. An operator like BPL Mobile may not be best placed to compete on tariffs, which, in India, are already the lowest in the world.

Is there a better way of dealing with bail-outs? There maybe. For example, instead of allowing the same management to operate the restructured businesses, the lenders could perhaps buy out the promoters and sell the rescued business to a better and bigger group or company.

That way, the lender can keep his loans from turning bad and more good money being thrown after bad. Agrees S. Naren, Head (Research), HDFC Securities: ''Theoretically, it is possible and makes economic sense. But a change in management in the company is not something that is done in India.'' Indeed, doing so requires tremendous political will. Not the most abundant of items in India-and rarer still in a year of elections.

-Ashish Gupta

Deepak Singhania: enjoyint the ride

Back to Black
LML's best-selling Freedom offers liberation from losses, too.

Deepak Singhania probably had himself as much as the customer in mind when he decided to brand his 110-cc motorcycle launched in July last year Freedom. A year on, the motorcycle has sold 1,61,515 units, contributing 85 per cent of the erstwhile scooter-manufacturer's revenues. More importantly, it may be kicking in real money for the embattled LML. This late-entrant to the motorcycle market has posted a 79 per cent drop in its losses to Rs 5.30 crore in the first quarter of this fiscal, and Singhania is talking of riding back into the black by the end it. And in order to do that he plans to step-up production of Freedom, recently introduced in 15 different options, from 2.3 lakh units a year to 4 lakh units, at a cost of Rs 125 crore. With motorcycles like Hero Honda Passion and Yamaha Libero showing a drop in sales, LML Freedom sure stands to gain. The hitch: motorcycle sales have slowed to 7.4 per cent (April-June 2003) from the 25 per cent of the last three years. Freedom alone may not take LML very far.

-Swati Prasad

Atal Bihari Vajpayee: Emerging as reform's number one champion

Prime Reformer
Prime Minister Vajpayee draws up an ambitious list of reforms to implement this fiscal.

If the Atal Bihari Vajpayee government's new "economic blueprint'' is to be believed, then it should be raining economic reforms this fiscal (never mind that we've already lost a quarter). At last count, the government had taken up 115 items for policy formulations and 47 projects and schemes to complete this fiscal. The blueprint, entitled "Priority Agenda for Action for 2003-04'' and drawn up by the Planning Commission with inputs from the Prime Minister's Office, is ambitious indeed. It not only has "people-oriented programmes'' such as providing Kisan credit cards to all eligible farmers and setting up farmers' markets on highways, but also tackles a number of contentious issues such as labour reforms, subsidies on cooking gas and kerosene, and changes in the Banking Regulation Act to reduce the government's stake in public sector banks to 33 per cent. Says K.C. Pant, Deputy Chairman of the Planning Commission: "Never before has a comprehensive policy agenda covering practically all ministries been articulated in this form."

But what is more interesting is the fact that out of 115 policy issues, the Prime Minister will himself be monitoring 23, including doubling of food grain production by 2010, and creation of a national environmental policy. Similarly, of the 47 key schemes and projects to be completed this year, the Prime Minister himself will monitor seven. These include his pet project (the Golden Quadrilateral and the north-south, east-west corridor), creating an enabling environment for increasing India's share of global trade from 0.7 to 1 per cent, and full computerisation of the income-tax systems.

Many of these reforms require Parliamentary approval. Besides, "Even the issue of phasing out subsidy on cooking gas and kerosene, which can be done through an administrative order, is unlikely to happen in an election year," says Bibek Debroy of Rajiv Gandhi Institute for Contemporary Studies. Then again, if there's anybody who can ram through all opposition, it's the Prime Minister.

-Ashish Gupta

STATSPEAK
Stock Shocks

Ever wondered why the stockmarkets are so volatile these days? Apart from usual suspect sentiment, there's a technical reason. No circuit filters apply to stocks where trading in options and futures is allowed. So, a stock can fall or rise to any level in a single day. Now you know why the chart (right) looks like the EEG of a headbanger.

-Narendra Nathan

THE BT 50 INDEX

First, allow us to give you the big news. The Bombay Stock Exchange is going the Business Today way. It is turning its bellwether index, Sensex, into a free float index. If you've been following the BT 50, you'd know why. If you haven't, well, it's never too late. Allow us to tell you why a free float index works better. One of the advantages of a free-float index is that it is far more responsive to a market uptrend or downtrend. True enough, BT 50 Index, India's first index based on free-float did just that with the recovery underway. But we are getting ahead of the story.

In early 2003, BT decided to launch its own stockmarket index because of issues it had with the construct of India's two most commonly used indices, BSE's Sensex, and NSE's Nifty (which hasn't yet announced any plans of going free float). Both are based on market capitalisation; that is, the weightage allotted to a certain company in the index is based on its market capitalisation. The problem: the inclusion of closely-held companies with large market capitalisation distorts the index.

BT decided to adopt the free-float method, wherein the market cap of a company is based on the quantum of shares available in the market for trading. Ergo, this method excludes the holding of promoters and strategic investors. However, while companies are required to furnish their shareholding pattern to the exchanges, the current format of disclosure isn't very strong-some companies have reported that their free float is 100 per cent, while it is common knowledge that a major portion of the equity of these companies is held by a few strategic investors. BT discounted these strategic holdings when it was calculating free float. To complete the methodology: the free float is according to data as on December 31, 2002; the index begins in January 2002, a relatively stable period; and its base value, like other indices is 100. Keep tracking!

-Narendra Nathan