Exactly a day after this magazine goes to press, the empowered Group of Ministers (EGOM), headed by Union Defence Minister Pranab Mukherjee, will meet in Delhi to decide the fate of privatisation of Delhi and Mumbai airports. About 10 days earlier, the Civil Aviation Minister, Praful Patel, had expressed hope that the group would take a decision one way or another. There's no doubt that overhauling the airports of India's two most important cities is long overdue. In fact, the Airports Authority of India (AAI) had first suggested their modernisation way back in 1993, but it wasn't until 2003 that the Atal Bihari Vajpayee-led NDA government approved it. From then to now, what should have been a fairly simple process has turned into a sad circus, thanks to an inefficient and corrupt government machinery, and scheming corporates.

Meanwhile, airline passengers in Delhi and Mumbai-one is the country's political capital and the other, its commercial one-continue to suffer due to stretched airport infrastructure. Indeed, one of the main reasons cited by the EGOM for not scrapping the controversial bidding process through which private investors have been shortlisted, is the inordinate delay already incurred. While such alacrity is ordinarily desirable, in this case it's a recipe for disaster. For the privatisation to go ahead unchallenged, the government must prove that the process of shortlisting bidders is not just technically sound, but unquestionably transparent.

Unfortunately the current process, which the EGOM seems keen on pushing through, is anything but that. There are just two consortia, (Anil Ambani's) Reliance-ASA and GMR-Fraport, that have qualified, and as per the bid conditions, no consortium may get both Delhi and Mumbai. That means Reliance-ASA and GMR-Fraport are assured of one airport each. Put another way, the crucial modernisation projects are about to be given away without any competitive bidding-hardly an ideal situation. "The government should not go ahead. Otherwise, the charge of taint will stay," says CPI(M) leader, Nilotpal Basu.

Looking back, though, it is apparent that the entire bidding process was subverted right from the word go. In July 2004, 10 players expressed interest in bidding for the modernisation projects. These were Reliance, Bharti, Essel, Larsen & Toubro, Videocon, the GMR Group, the GVK Group, Macquarie Bank, DLF and DS Construction. Of them, Videocon was rejected early on. On September 14, the government received six proposals, which were then evaluated by the consultants appointed for the purpose.

After looking into the proposals, the consultants shortlisted only two consortia: Reliance-ASA and GMR-Fraport. Bidders who didn't make it and opposition parties were outraged. Allegations surfaced that the evaluations were subjective, and done in a way to benefit the shortlisted parties. It was pointed out that the initial bid deadline of May 24, 2005, had been revised to benefit Reliance, which hadn't managed to rope in a partner by then. Two hours before the deadline, it was extended to June 3 (and extended again). Then, the request for proposal was modified on August 30, 2005, giving bidders only 15 days to submit their bids. The Bharti-Changi consortium decided not to bid. Rues one of the bidders: "Nothing is transparent. Each clause and provision is being interpreted the way it suits a particular bureaucrat or minister."

In January, a committee headed by Delhi Metro Chief E. Sreedharan was asked to re-evaluate the shortlisted bidders. In his report, Sreedharan scored the Reliance-ASA combine low on management capability and transition plan, and in effect disqualifying it from the race. He also recommended that the AAI, currently a partner in the two projects, be asked to carry out the modernisation on its own by setting up a special purpose vehicle. But when BT went to press, the EGOM seemed inclined to reject Sreedharan's report and go ahead with the two shortlisted bidders-or at best, include two others.

The argument for not scrapping the bids is that too much time has already been lost. But unless the bidding process itself is made above-board, controversies will continue to dog the privatisation effort. Scrapping the existing bids and inviting fresh ones may be the only way to put the controversies to rest. Yes, that will mean some delay. But a country that took 10 years to make up its mind about airport privatisation can surely live with a delay of a few months.

-Kumarkaushalam

INSTAN TIP
The fortnight's burning question.

Q. Will Interest Rates Harden?

Yes. Ravindra Kumar, Country Head (Wholesale Banking), ING Vysya Bank

Demand-supply mismatch will see interest rates hardening up to March. I wouldn't be surprised if RBI increases interest rates by 25 basis points in its forthcoming monetary policy. In the medium to long term, I think rates are likely to ease on softening oil prices, which could fall to $50 (Rs 2,250) per barrel.

No. Haseeb A. Drabu, Chairman & CEO, Jammu & Kashmir Bank

I don't see RBI increasing interest rates, since interest rates have already hardened over the last month because of tightness in liquidity in the banking system. But I think RBI will wait for the full year's accounts and the next policy review in April and revisit rates in April or May 2006.

No. K. Cherian Varghese, CMD, Union Bank

Interest rates will not soften from the current levels. The short-term rates have already hardened following scarce liquidity. There are more advances than availability. However, in the medium and long term, interest rates will be decided based on the liquidity in the system. That, in turn, will be dictated by inflows.

--compiled by Mahesh Nayak

NBFC Consolidation: Round Two

Sundaram Fin.'s Raman: Sees no foreign threat

The NBFC (non-banking financial companies) business is not what it once used to be. The industry has shrunk from 875 firms in 2002-03 to 573 in 2004-05. Yet, in between the obituaries, some surprising M&A stories are being written. Singapore's biggest bank, DBS, picked up a 37.50 per cent stake in Cholamandalam Finance in June last year; Newbridge Capital paid a whopping $100 million (Rs 450 crore) for 49 per cent of Chennai-based Shriram Group, and more recently in January this year, Temasek Holdings, Singapore's private equity giant, purchased Dove Finance, a Chennai-based NBFC. It's a process the industry is describing as a second round of consolidation, where the competition is between big NBFCs and banks. But local biggies like Sundaram Finance aren't shaking in their boots. "The cost of money is the same for everybody. We don't see a threat from foreign players," says G.K. Raman, Director, Sundaram Finance.

Although the only areas of financing left for an NBFC are in truck, tractor and heavy earth moving equipment, NBFCs like Sundaram haven't just met competition from banks head on, but grown. So is there room for a super-sized NBFC? "SMEs and the consumer finance sector is a good proxy for us to participate in India's growth," says Rachel Lin, Associate Director of Temasek Holdings from Singapore. Others seem to agree. While announcing the Cholamadalam acquisition, Rajan Raju, DBS' Head of South-East Asia, said that his bank saw "significant potential" in India's fast growing wealth management market. If it looks like the new players are picking up niche slots in the market, it is because they may actually be preparing groundwork for 2009, when M&As in the banking sector will finally be unshackled.

-Anand Adhikari

French Auction For MUL
New method may be used for future divestments.

Buzz at Maruti: Be a trendsetter, and now with a French connection

The government raised nearly Rs 1,567 crore from the sale of an 8 per cent stake in Maruti Udyog Limited (MUL). So what's new (apart from the absence of any leftist opposition)? This was the first time the French auction method was used to sell the shares of any Asian company. Under this model, bidders are obliged to purchase the shares at their bid price, provided it is higher than the reserve price. It is also called the "winner's curse" as the highest bidder gets all the shares he wants, but at his bid price (which is the highest). If there are shares left over after this, the second highest bidder gets the number of shares he has bid for at his bid price. This process carries on till all the shares on offer are allotted.

Says A. Rajagopal, Senior Vice President (Equity Capital Markets), Kotak Mahindra Capital Company: "Sellers can maximise their gains under the French auction method." The government earned 3 per cent higher than the cut-off price of Rs 660 per share and 9.4 per cent higher than the floor price of Rs 620 per share, he adds.

Only eight bids, out of 36, were accepted at an average price of Rs 678.24 per share. The highest offer of Rs 725 per share was received from the Small Industries Development Bank of India. Life Insurance Corporation of India, however, placed the largest bid (for 1.68 crore shares) at Rs 682 each. Corporation Bank (Rs 690), Exim Bank (Rs 680), Indian Bank (Rs 670), Union Bank (Rs 665), and State Bank of India and State Bank of Patiala (Rs 660 each) were the other successful bidders. The government's stake in mul has come down to 10.2 per cent following the auction.

Analysts say the government might use this method for other divestments or in cases where it has to offload a block of shares. Indian Oil Corporation is expected to use the same method to offload its holding in exploration major Oil and Natural Gas Corporation and gas company GAIL India Ltd.

-Mahesh Nayak

A Rs 6,000-Crore Week At Auto Expo

Show stealers: Purring beauties

Bosch GMBH set the tone for the eighth edition of the Indian Auto Expo. A day before it opened in Delhi on January 12, Bosch announced that it was expanding the scope of its ongoing Rs 1,000-crore expansion programme. The new budget: Rs 1,755 crore. The reason? Bosch sees a huge market for its common rail diesel (CRD) systems in India; hence, the additional investment.

When the Expo opened, Jagdish Khattar, Managing Director of Maruti Udyog Limited, announced a Rs 2,718-crore investment to develop five new cars over the next five years. This is over and above the Rs 3,200 crore it is investing in its new manufacturing facility at Manesar.

Hero Honda announced plans to invest Rs 320 crore in 2006, Yamaha Rs 300 crore and TVS Motor Rs 400 crore. Ashok Leyland, too, announced a Rs 550-crore plan to increase its capacity from 77,000 units per annum to 100,000 units and to set up body-building lines in Dubai and in North India.

Then, Bosch's rivals got into the act. TVS-Delhi announced Rs 500-crore plans to manufacture CRD units as well, while Bharat Forge, decided to invest Rs 400 crore in a new greenfield facility in India.

That adds up to Rs 6,000 crore of investment announcements in one week alone.

-Kushan Mitra

More Signs Of Progress
Urbanisation, consumption and education are all rising in today's India.

Urbanisation has risen significantly in India between 2000 and 2005; and the economic status of Indian households across socio-economic categories (SECs) has improved during this period, says a study conducted by Media Research Users Council (MRUC) and Hansa Research. According to the report, the number of urban households in the country went up 22 per cent over the last five years. There were 50.3 million urban households in the country in 2000; this rose to 61.5 million in 2005.

Consumption across all major product categories and SECs also saw an upswing in the past five years. mruc/Hansa Research tracked FMCGs (fast moving consumer goods), durables, personal care and household care categories and found a rise in consumption in all (see It's Getting Better With Time). "We also tracked the educational status of housewives in both urban and rural markets because that is the best indicator of any shift in social inclinations. And we found an improvement in the literacy and education levels across SECs," says Vineet Sodhani of Hansa Research, who led the study.

A total of 163,794 urban and 73,580 rural households were surveyed in 2005. Over 71 per cent of the housewives in urban households and 41 per cent in rural households were found literate, compared to 69 per cent and 35 per cent, respectively, in 2000. The study has been able to link the educational levels with propensity to spend. "The zone (South) showing the highest growth rate in most consumption categories is the zone scoring well on literacy/education as well. This clearly indicates that education drives consumption," says Sodhani.

-Archna Shukla

BPOs' Analytics Boom

Marketics' Ramakrishnan: Insights it is

High-end analytics is the next boom area for Indian BPO (business process outsourcing) companies. S. Ramakrishnan, CEO of Marketics, a leading player in the segment, says: "Unlike low-end BPO work, analytics is about driving top line growth by identifying insights and opportunities." For instance, ever wondered why it makes sense for an international supermarket chain to keep beer next to baby diapers? Or why Barbie dolls sell better when placed next to expensive men's shirts? Answers: Men buying diapers are most likely to be on baby-sitting duty and there is a 50 per cent chance they will stock up on beer. Also, when a man buys an expensive shirt, there is a good chance that, feeling guilty, he may end up buying his little daughter a Barbie doll. It is these insights that analytics companies provide to marketers across the world.

-Venkatesha Babu