Sahara's Roy: Waiting for the right bid

Is the Indian aviation dog fight about to throw up its first casualty? The Subrato Roy-promoted Air Sahara has confirmed that it has hired consulting firm Ernst & Young to find a strategic partner for the airline. Going by the presentations that Roy has been making to potential investors, he is asking for about $800 million (Rs 3,520 crore) for the airline, which has a fleet of 24, comprising 17 737 series aircraft (old and new) and seven CRJ 200s. Its market share is down to 14 per cent from 18 per cent just six months ago, because one of its fleet is grounded (recently, one of its jets overshot the main runway in Mumbai airport, and stayed stuck in soft ground for four days, delaying planes of other airlines; the airports authority is threatening to impose Rs 20-25 crore in damages). The bids that Sahara has received are said to be far lower than the asking price. BT learns that Vijay Mallya of Kingfisher Airline has offered $600 million (Rs 2,640 crore) and Jet Airways' Naresh Goyal $625 million (Rs 2,750 crore). Some other players are believed to have offered far lower prices. Despite Jet's higher offer (for the record, Jet has denied that it is picking up a stake in Air Sahara), Mallya may be a more serious contender.

Why are the offers lower than Roy's asking price? Largely because of two reasons. One, Air Sahara is believed to have a debt of at least Rs 200 crore on its books. Two, its mixed fleet means higher operating costs in terms of engines, spares, and pilot certifications. Yet, acquiring a strategic stake in the airline makes sense for both Kingfisher and Jet. Kingfisher gets to add not just domestic market share but also international traffic, thanks to Air Sahara's recent arrangement with American Airlines (AA) for the India-us sector. As for Jet, whose application to fly to the us has been hanging fire, the AA deal will come in handy.

But why does Sahara's Roy want out? Possibly because it's becoming apparent that the aviation market in India is headed for a shakeout. Besides, Roy may be keen to focus on his other core businesses, which include parabanking and housing. For the latter, especially, Roy has ambitious plans. He picked up real estate in at least 50 Indian cities well before the real estate boom, and now plans to construct residential and commercial complexes in them. So, Air Sahara will bring in a partner sooner than later-even if it's below the E&Y valuation.

-Kushan Mitra

A Beancounter's Trek To Bangladesh

PwC's Roy: Now he'll be talking takas

One has a thorough knowledge of the local market and the other, a vast international exposure. And now the two have come together to reap the benefits of what they call 'connected thinking', in consultant parlance. The $16 billion (Rs 70,400 crore) PricewaterhouseCoopers (PwC), UK, has teamed up with A. Qasem & Co to float PricewaterhouseCoopers Bangladesh, which is shut to independent foreign audit firms. The JV is the first instance of an international advisory services firm to be present in the country with a local entity. But is there an India angle to the JV? You bet. PwC India's Chairman Rathin Datta and its MD Roopen Roy are both on the JV's 10-member board. "PwC India will have a greater role to play in the new company, given the language capabilities and regional experience," says Roy. The Indian audit firm will also leverage its new global training facility coming up in Salt Lake, Kolkata, to train new recruits from Bangladesh. There's a strong business angle too. With Indian companies like those of the Tata Group, GAIL and ONGC planning investment in the neighbouring country, PwC India sees opportunities in a range of advisory services. For example, the Tata Group has proposed $2.5 billion (Rs 11,000 crore) investment in Bangladesh in steel, fertiliser, and power. With PwC showing the way, it's a matter of time before the other audit firms follow suit.

-Ritwik Mukherjee

Prince Of All He Sees
Citigroup CEO makes his maiden trip to India.

Citigroup's Prince: Bullish on India

Admittedly, there are two things that worry Charles "Chuck" Prince, CEO of Citigroup Inc., the world's biggest bank. One is the sustainability of the US consumer base and the other is the (rising) price of oil. What he is bullish about, however, is India's GDP (gross domestic product) growth, although he refuses to compare it with China. "That's a big mistake. Both (countries) are very important and growing very differently," Prince said at a press briefing in Mumbai to announce the establishment of the Citigroup Centre for Financial Literacy at the Ahmedabad-based Indian School of Microfinance for Women. "Microfinance is important (to Citi) since it strengthens local economies, and that works to our self interest as well," he said replying to a question on why Citi was dabbling in microfinance.

While no projections for growth of the bank in India were forthcoming from Prince on his first ever visit to the country, he did mention that the revenues would be equally split between the us and international businesses for Citigroup in the next five years (currently international business accounts for 40 per cent of the bank's revenues). "The markets for financial services in Asia are going to grow much faster than those in Latin America or the United States...India is right on top of the list of the fastest growing economies and we retain all our earnings here for investments into the market," he said, adding that he saw it as a positive sign that most senior people in Indian business felt that growth could be much faster. The Citi CEO, who took over the mantle from the bank's legendary Sandy Weill, said that Citibank India-with $10 billion in assets, $1.5 billion in capital and 15,000 employees-expects to grow organically for the moment. But gauging from the fact that it's the first visit by a Citibank CEO in five years, Prince has more up his sleeve than he's letting on.

-Priya Srinivasan

Q&A
"I Hope I'm Not Nominated To London Olympic Board"

Two months ago, Swraj Paul, chief of the UK-based Caparo Group, was appointed as the Chairman of London's Olympic Development Authority, responsible for building relevant infrastructure ahead of the 2012 games. In Delhi recently, he spoke with BT's Swati Prasad on his Olympic role and businesses in India. Excerpts:

What's your role as the Chairman of the London 2012 Olympic Development Authority?

My job is to set up the infrastructure for the Olympics till the Olympic Board is set up, through an Act of Parliament. That could take another 18 months to a year.

I believe more than £5.5 billion (Rs 43,450 crore) is to be spent on the infrastructure for the Olympics?

In order to set up the infrastructure for the Olympics, around 400 businesses have to be relocated and a great deal of property needs to be bought. Yes, huge sums of money are involved. We would be setting up temporary stadiums in scenic parts of London such as Greenwich and Horse Guards Parade. An Olympic city would come up in the area also known as the Canary Wharf.

Do you hope to chair the Olympic Board as well?

I hope not. Though it's a privilege and an honour to hold this position, it is a 24-hour job. It involves a lot of hard work and I am getting old. I will turn 75 next year. Whatever work we initiate, will get taken over by the Olympic Board.

What are Caparo Group's plans for India?

Caparo in India is around Rs 350 crore in turnover. And we want to make it as big as our UK or US operations. Over the next 10 years, the turnover from India should be around $1 billion (Rs 4,400 crore). It will take us an investment to the tune of Rs 1,000 crore to get there.

Back To Square One
The Mumbai High Court strikes down the sale of mill lands.

On shaky ground: (From L to R) A developed mill site stands in sharp contrast to those still waiting in the wings

It's a judgment that promises to spawn a thousand appeals. A Division Bench of the Mumbai High Court has struck down the 2001 amendment to the Development Control Rule 58 (the specific rule dealing with the sale of textile mill lands), which allowed textile mill owners in Mumbai to develop or sell mill lands for commercial purposes. The court has ruled that one-third of the total mill lands should be used for providing low-cost housing, one-third for public amenities and only the balance for commercial development.

The judgment, which came on a PIL filed by the Bombay Environmental Action Group, has set the cat among the pigeons. The National Textile Corporation (NTC), for example, had sold the Jupiter, Apollo, Elphinstone, Kohinoor and Mumbai Textile Mills for a combined sum of Rs 2,000 crore, of which it has already received Rs 1,600 crore. Unless the Supreme Court (sc) overturns the judgment, ntc will have to refund the money. Other mill owners like Hindoostan Mills, Khatau, Simplex and Standard Mills are also developing their properties. And developers like K. Raheja Corporation, Marathon Developers, Godrej Properties, Seth Developers and Morarjee Realties are believed to have accepted more than Rs 125 crore as advances from home buyers for their proposed projects. The fate of all these now hangs in balance. "There will be massive confusion if builders have to chop off the top 10-odd floors of their buildings," says Pranay Vakil, Chairman, Knight Frank India. This is a possibility as the total built-up area depends on the size of the plot; if the plot area shrinks, the total permissible built-up area is also reduced on a pro-rata basis.

Individual developers were reluctant to comment on the judgment, but K. Ramachandran Pillai, CMD of NTC, hinted at an appeal. "We sold our mill lands only after receiving a go-ahead from the Supreme Court. This is a temporary setback, but we are confident of putting together a professional case before the apex court." Not everyone is as optimistic. Anuj Puri, Managing Director, Trammell Crow Meghraj, says: "I am concerned about the kind of signal this will send to foreign investors." Farallon Capital, a California-based private equity firm, had entered into a joint venture with financial services firm IndiaBulls to acquire NTC's Jupiter Mills property for Rs 276 crore. This deal, like all the others, now stands at the crossroads.

Mill owners and developers are expected to appeal against this judgment before the sc within the next two to three weeks.

-Priya Srinivasan and Krishna Gopalan

MOBILE KARAOKE

As if funny ringtones weren't bad enough, cellular operators in India were gearing up to launch mobile karaoke (starting October 19) when BT went to press. Developed by Mobile2Win, a Mumbai-based mobile applications company (part of Alok Kejriwal's Contests2win), the karaoke songs (lyrics included) will cost Rs 25-35 per download, and the company sees a potential of 2-2.5 million downloads a month. "India is full of bathroom singers," quips Rajiv Hiranandani, Mobile2win's Country Manager. This may be the time to invest in a noise-cancelling headset.

-Sahad P.V.

SELF WORTH
An Old School Oilman
Subir Raha has emerged as a public sector star in his own right.

I'm the best: Raha (left) with Petroleum Minister Aiyar

If ONGC (Oil & Natural Gas Corporation) had been a private sector company, its Chairman & Managing Director Subir Raha, 57, would have been a very, very wealthy man. In 2004-05, the company earned a net profit of Rs 12,983 crore. A commission of 0.25-0.5 per cent of that-many private sector CMDS get that much-would have netted him Rs 32.5-65 crore last year alone. But ONGC is a public sector Navratna; so Raha has to be content with an annual salary of Rs 6.5 lakh plus perks. He has little regrets, though. "I have thoroughly enjoyed my career in the public sector and would not wish to trade it for any private sector company," he says.

There are other, more important, issues occupying the mind of this feisty, chain-smoking oilman who enjoys his evening tipple-almost an Indian replica of the heavy set, cigar chomping, heavy-drinking American oil magnate of Hollywood lore. He has successfully thwarted the Petroleum Ministry's plan to foist Director General of Hydrocarbons V.K. Sibal and Special Secretary M.S. Subramanium on the ONGC board; he is also battling his ministerial boss, Mani Shankar Aiyar, over a plan to hive off OVL (ONGC Videsh) into an independent company. "No company can function with multiple bosses," he explains. But these very public rows seem to have left him none the worse for wear and tear. There's a buzz that Raha, who retires from service in August 2008, has been granted a three-year extension. The ONGC chief declines to comment on this.

The spat with his boss made the silver-maned electronics and telecommunications engineer from Kolkata's Jadavpur University and MBA from UK's Leeds University a bit of a media star, but it must be said that he has other, more substantial achievements to his credit. When he entered the corner office at ONGC in 2001, it was just another profitable PSU. Raha, a workaholic who often e-mails colleagues at 3 a.m., set about rebuilding the company in his own aggressive, go-getting image. "If I am not willing to stretch myself, then I have no moral right to expect the same from my staff," says the man, who joined Indian Oil Corporation as a management trainee in 1970 and rose to the position of Director (Human Resources) in June 1998. Raha's working day begins at 10 a.m. and often extends till 2-3 a.m. the next morning.

He uses these long hours to chart out a blueprint to expand ONGC's presence both within the country and abroad. In 2003, he bought out the Birlas' 51 per cent stake in the joint venture MRPL for Rs 660 crore, and, within two years, wiped out accumulated losses of Rs 1,059 crore; MRPL ended 2004-05 with a net profit of Rs 880 crore. Under him, ONGC also managed to turn around Bombay High, lifting its output to 270,000 barrels of oil per day, the highest in the last eight years. OVL, too, has made significant progress. Raha's pet project, the Sakhalin Oil Field in Russia, in which the Indian company invested $2.5 billion (Rs 11,000 crore), has started paying off. OVL also has stakes in oil and gas fields in Sudan, Vietnam, Libya, Egypt, Syria and Cuba.

But despite these successes, there are question marks over ONGC's performance. Critics say the company is slipping on its most crucial function-that of finding new oil and gas fields. The first-ever quarterly report prepared by the Directorate General of Hydrocarbons shows that despite spending Rs 1,822.64 crore and drilling nine wells during 2004-05, it has failed to make a single discovery. In contrast, Cairn Energy India, which invested Rs 2,827.7 crore during the year, made eight discoveries. Raha disagrees with this interpretation. "We have shown that public sector is no longer a pejorative term. Today, ONGC-OVL is the most valuable company in the country and the biggest Indian multinational," he says. There's no denying that.

-Ashish Gupta