|In the eye of the storm: Mittal feels
a hostile takeover is never an easy thing. Apart from the target
company raising its defences, labour unions and local politicians
usually move in for their pound of flesh. Lakshmi Niwas Mittal,
the Kolkata-born steel king who became the world's biggest producer
by acquiring Wilbur Ross' International Steel Group in late 2004,
must have surely anticipated stiff resistance from the world's
#2 steel company when he announced plans of a hostile, $22.3-billion
(Rs 1,00,350- crore) bid for Arcelor late January. But even Mittal,
despite being the global dealmaker that he is, must have been
surprised by the fury his bid has provoked in Europe.
Even as Luxembourg-based Arcelor's CEO Guy
Dollé mumbled about the bid being inadequate (when announced
on January 27, the offer price of m28.21 or Rs 1,495.13 per share
was a 27 per cent premium over the previous day's close) and how
Mittal should make an all-cash offer if he were serious, political
leaders in France and Spain, besides Luxembourg, sprang to Arcelor's
defence. France's fiery Finance Minister Thierry Breton called
Mittal "a problem in the grammar of the business world",
meaning, apparently, to say that Mittal should have consulted
stakeholders before announcing a bid. President Jacques Chirac
himself, due to visit India over February 19 and 20, expressed
concerns over the quality of corporate governance at Mittal Steel.
But in a subsequent interview to BT's sister publication India
Today, Chirac said, "French authorities are concerned about
the shareholders and (Arcelor). (But) there is no room for debate
on questions like differences in corporate cultures between Arcelor
and Mittal, or the conditions of the bid." Unlike Luxembourg,
France does not own any stake in Arcelor, but some 30,000 of its
people work for the steel company. More importantly, presidential
elections are due in France in another 15 months.
As Mittal criss-crossed Europe in his private jet, meeting political
leaders and trade regulators, it appeared that the world's third
richest man would have to fight a lonely battle-until India, led
by Union Commerce Minister Kamal Nath, came to his aid. At first,
it seemed surprising that Nath should shoot off a letter to European
Commission trade commissioner Peter Mandelson stating that "the
reaction in some quarters of the European Union impinges on the
letter and spirit of the National Treatment Principle" (WTO-mandated
rule of equality to all members). While Mittal, 55, may still
hold an Indian passport, Mittal Steel, of which he owns 80 per
cent, is registered in the Netherlands. It's obvious that the
Indian government would not have taken up the cudgels on his behalf
had Mittal not been an Indian.
in some quarters of the European Union impinges on the letter
and spirit of (fair play)"
Union Commerce Minister
Yet, the Indian government may actually be
testing its own clout in the new world order, where globalisation
is the new mantra and WTO, its shrine. Is the Indian government
really worried about the Mittal-Arcelor spat? We don't think so.
But what it is worried about is the globalisation of convenience,
where developed countries can ask for lower tariffs and other
concessions when it suits them, but raise their own defences when
it comes to other developing countries. And don't forget that
the China National Offshore Oil Co. (CNOOC) had to withdraw from
its bid for us-based Unocal after American regulators put the
fear of communism in the local company. Unocal ended up settling
for a lower bid from Chevron.
There is no doubt that the fight between
the two steel companies has brought out Europe's paranoid side
to the fore. France plans to amend corporate laws to allow companies
to pop a "poison pill" by issuing stock warrants, which
would make, at least, hostile bids that much more difficult. Earlier,
late last year, the French government came up with a list of 11
sensitive sectors, where its permission would be mandatory before
a foreign investor could acquire a significant stake in them.
The law came in the wake of PepsiCo's rumoured bid for Danone.
Mid-February this year, Germany also passed a similar law.
When BT went to press, Arcelor had announced
that it would increase its 2005 dividend to 85 per cent. How does
that matter? In its draft prospectus for the Arcelor bid, Mittal
Steel says that it would scale down its offer price if Arcelor's
dividend payout crossed m0.80 or Rs 42.4 per share. At 85 per
cent, the payout works out to m1.20 or Rs 63.6 per share.
The fortnight's burning question.
Q. Will Gold Touch Rs 10,000 (per 10
Shah, President (Private Client Service), Edelweiss
Over a one-year horizon, gold prices will
cross Rs 10,000 per 10 gram. The demand-supply mismatch will drive
gold prices. In fact, our call on gold is that in the next two
to three years, it may touch Rs 12,000 per 10 gm.
Ramrakhiani, Head of Research, IL&FS Investsmart Commodities
I don't think gold will touch Rs 10,000 in
the next one year. But the bullish trend is expected to continue
following investment flow into the commodity. Gold is considered
a pseudo-currency, which is why it's being piled up by investors
to fight currency weakness and inflation.
Mathur, Head of Commodities Operations, Fortis Comdex
The prices may continue to remain firm following
the demand for gold. With the US "twin" deficits (trade and budget)
inching towards unsustainable levels, central banks are switching
to gold as a hedge against a possible weakening of the dollar.
If gold maintains its present rate of appreciation,it should touch
Rs 10,000 in 2008.
IPO Rush: New Sectors on tap
has been an interminable bull run on the Indian stock markets,
and with the Sensex crossing the 10,000-mark, investors seem convinced
that the deluge of foreign money, which has been fuelling the
boom, isn't about to slow down. In the midst of all this, several
new industries-not just companies-have stepped into the IPO market
to make hay while the sun shines. Those range from multiplexes
to radio and TV channels to jewellers to even shipbuilders (see
Take multiplexes. Shringar Cinemas was the
first to debut, but since then, PVR Cinemas and Inox Leisure have
tapped the markets. Now, some more sectors are taking aim. These
include stockbroking (Sharekhan and Emkay Shares) and aviation
(Deccan Aviation and Kingfisher Airlines). All the sectors, just
like the investors, are counting on the fact that India's burgeoning
economy will automatically put them on a roll too. Agrees S. Ramesh,
Executive Director, Kotak Investment Banking: "Strong GDP
growth and buoyant company performance are the two key contributors
to this continuing interest."
If the market holds up, this may be just
the beginning. Insurance, internet, real estate, airport infrastructure
and logistics are some of the industries waiting to do an IPO.
Given the inherent uncertainty of stock markets, they may decide
to debut sooner than later. At any rate, the line up on Dalal
Street promises to get vastly dandier. Equity investors, lick
"Bangalore Is Back In Business"
a fortnight after taking over as the 18th Chief Minister of Karnataka,
Kumaaraswaamy, fondly called 'Kumar Anna' by acolytes,
seems to be a man in a hurry. Head of the first JD (Secular)-BJP
coalition government in the state, Kumaaraswaamy wants to prove
that his administration can deliver. And he has just 20 months
to prove it before he hands over the chief ministership to his
coalition partner. In an exclusive interview with BT's , the Chief Minister had a simple message to deliver:
"I want to tell the CEOs who read this magazine that Bangalore
and Karnataka are back in business". Excerpts:
Bangalore's infrastructure is getting
worse by the day.
Everybody knows what the problems are. I want
to provide solutions. Within a fortnight of taking power, I have
already held three high-level meetings to address this situation.
Half-completed flyovers will be finished. Potholed roads will
be asphalted. Traffic situation is something we are working on.
All the infrastructure problems of Bangalore will be addressed.
One, however, has to realise that Bangalore grew very fast in
the last 10 years. Infrastructure could not cope. We will accelerate
infrastructure development. However, I want my investor friends
to look beyond Bangalore also to Mysore, Mangalore, Hassan, Hubli,
Dharward. We will provide all infrastructure to help industries
establish base there.
Such promises have been made in the past
I have given strict deadlines to the bureaucracy
to execute these projects. I know that the common man wants to
see action on the ground, visual changes that he can experience.
We will deliver that. I have set up a taskforce to ensure speedy
implementation and I am personally heading it. I will also make
surprise checks to ensure that work is being carried out.
The IT and biotech sectors have been made
to feel unwanted. Do you agree?
I don't want to comment on whatever happened
in the past. Let me use your magazine to tell all investors, "Bangalore
and Karnataka are open for business. Please, come and invest.
If you have problems, we will sort them out." The IT and
biotech sectors have done a lot of work to create a name for Bangalore
and I want them to continue to see Karnataka as a favoured investment
Karnataka has lost the FAB city project
I have spoken to SemIndia's Chief Executive
officer (which is the lead member of the consortium putting up
the FAB city) Vinod Aggarwal and asked him to reconsider. We will
provide all facilities they want. In future, we will ensure that
Karnataka does not miss out on any big-ticket investment.
What happens to Bangalore's public-private
I firmly believe that the expertise of private
sector could be used for the larger good. I am shortly convening
a meeting of leading industrialists in the state. Bangalore Agenda
Task Force will be revived (maybe under another name). We will
definitely seek the help and guidance of private sector for the
progress of the state.
One final question. What about your favourite
industry (Kumaaraswaamy is a producer, distributor and exhibitor
of movies and has produced five movies till date, including two
(Smiles) I have a project in mind. I will
decide on that later. Of course, the film industry in Karnataka
will be encouraged. Kannada movies must thrive.
Suddenly, the market for NPAs hots
|HSBC's Niall Booker: Bad loans sell
blotches on banks' balance sheets, non-performing assets (NPAs),
a euphemism for bad loans, have now morphed into an emerging and
aggressively pursued asset class. A new breed of investors, mainly
foreign ones, is willing to pay cash upfront to acquire them.
Since October 2005, this space has witnessed nearly Rs 2,000 crore
of cash transactions. The trigger: Reserve Bank of India's announcement
in July last year of norms for inter-bank transfers of these assets.
The players: ICICI Bank, HSBC, State Bank of India and Punjab
National Bank as sellers and Standard Chartered Bank, JP Morgan,
Deutsche Bank and Kotak Mahindra Bank as buyers. The total NPAs
in the Indian banking system: Rs 1,11,000 crore.
The sellers' rationale: they get to clean
up their books and get something out of (virtually) nothing. Earlier,
they could either recover these loans themselves or through the
Corporate Debt Restructuring Mechanism, both lengthy and cumbersome
processes. The option of selling them to the Asset Reconstruction
Company of India Ltd (ARCIL), the sole Indian player in this space,
was not particularly attractive.
"ARCIL issued security receipts which
were to be redeemed only after it actually recovered the dues,"
says K. Cherian Varghese, CMD, Union Bank of India. Cash sales
are obviously more attractive.
For buyers, the low acquisition price makes
these assets attractive as they can scavenge for significant returns.
Market sources say ICICI Bank received about 15 per cent of the
book value for Rs 1,300 crore of dicey assets it sold Stanchart
Stanchart expects returns "in the high
20s (per cent) from its ICICI portfolio", says Vinayak Bahuguna,
Head, Alternate Investment Group, at the multinational bank. How?
By reviving these units, by settling with the promoters and by
taking recourse to the law. The time frame: 18-24 months. Says
Badri Narayanan, Associate Director, Ernst & Young India:
"New investors, without a prior banking relationship with
the defaulters, stand a better chance of resolving the issue."
Globally, this is a big business, and market
sources say India can see huge annual inflows if the government
eases the regulations. On the wishlist: removal of the foreign
investment cap of 49 per cent in each asset reconstruction trust,
the scrapping of the limit of 10 per cent for individual investors
and tax breaks on the sale and purchase of NPAs.
Won, What's Next?
|BCCI's Sharad Pawar: Rising fortunes
communications, a sports marketing and production company, stunned
everyone with its $612.18-million (Rs 2,754.18-crore) bid for
the four-year domestic and global television rights awarded by
the Board of Control for Cricket in India (BCCI). But the bid
raises some questions. The most elementary one is: what will Nimbus
do with the rights? "It will have to come to one of us since
it doesn't have a television network of its own," says R.C.
Venkateish, Managing Director, ESPN, whose $401.9-million (Rs
1,808.55- crore) bid was the third highest. So, will broadcasters
pay for Nimbus' ambition? "Unlikely," says another broadcaster.
Nimbus, though, isn't worried. Its Chairman
Harish Thawani has reportedly told sections of the media that
Indian cricket has "expanded beyond the local market to the
US, the UK, and even to countries like Nigeria, Kenya and Fiji".
Experts, however, argue that the Indian market remains the key;
all the others combined can contribute at best one-fourth to total
revenues. Then, there are rumours of a sweetheart deal between
Nimbus and the Zee Network, which bid $513 million (Rs 2,308.5
crore). The BCCI brass, meanwhile, is basking in the afterglow
of the staggering numbers. "We set out to maximise revenues
and we've done that," a senior official says. In the midst
of this uncertainty, the only party that's sure of its fortunes
is the BCCI.
Travel portals are hot with VCs. Caution
|Travelguru's Damera: Ticket to ride
two of Silicon Valley's best-known venture capitalists (VCs)-KPCB's
John Doerr and Sherpalo Ventures' Ram Shriram-made their first
investments in India recently, one of the two internet companies
they picked was Cleartrip.com. The $3-million (Rs 13.5-crore)
investment hasn't yet been formally announced because Cleartrip.com
is a work-in-progress. But Doerr and Shriram were hardly the only
VCs betting big money on a travel portal. In the space of 10 months,
three other travel portals have attracted venture capital: In
May 2005, Makemytrip.com got $10 million (Rs 45 crore) from SoftBank
Asia Infrastructure Fund; Yatra Online, founded by ex-Ebookers
Dhruv Shringi and Manish Amin, received an estimated $5 million
(Rs 22.5 crore) from Promod Haque's Norwest Venture Partners,
Reliance Capital and tv18 in January this year; and on February
3, WestBridge Capital Partners announced it was investing (reportedly
$10 million or Rs 45 crore) in Travelguru, founded by 27-year-old
Harvard Business School (HBS) alumnus Ashwin Damera (WBCP's co-founders
are from HBS, too). Says Damera: "This model has been very
successful in the us, Europe and even China." (Incidentally,
world's best-known online travel firm Expedia's stock was hammered
after it reported disappointing q4 earnings; peer group stocks
were down too in sympathy.)
All the wide-eyed VCs are parroting a number
produced and hyped obviously by the travel industry. WestBridge
expects the Indian travel industry to touch $32 billion or Rs
1,44,000 crore by 2008 and Norwest puts it even higher at $50
billion or Rs 2,25,000 crore by 2009. The current size of e-Commerce
in India is estimated at Rs 1,500 crore, of which two-thirds is
from online travel (including flight and hotel bookings). For
the travel portals to grow, the internet penetration in India
will have to increase significantly. Currently, there are about
40 million internet users in the country. Sure, by 2010, their
number is expected to jump to 110 million, but that may not be
large enough for a crowded online market. Says a prominent VC
who is currently considering five such investment proposals: "I
think there will be only two players who will survive in the long
run." Unless, of course, the portals can expand their reach
to mass-market segments like railways, and inns and budget hotels.
Most importantly, perhaps the portals would need to have a "mobile
strategy", given that there are 83 million mobile phone subscribers
(GSM and CDMA) versus 40 million net users.
|Free for all: A typical day to work
ever spent time stuck on Bangalore's busy Hosur Road that takes
legions of city code jocks to India's "Silicon Valley"
must have contemplated one of the two things: One, turning into
a stay-at-home spouse or, two, fleeing the city. That's because
although the stretch is barely 20-km long, it can take two to
three hours during rush hour to complete it, courtesy the 80,000
cars that pack it every day. That means even before the workday
has started, employees come in feeling frustrated and exhausted.
Obviously, that affects their efficiency and productivity too.
So, some of the smarter companies like Biocon have come up with
a solution: Reset the workday clock. Instead of working, say,
9-to-5, they are getting into work much earlier and going home
earlier too. Biocon has switched to a 7:30 a.m.-to-4 p.m. schedule,
and so has Siemens Information Systems. Tesco Hindustan works
8:15 a.m. to 5:15 p.m. Infosys, which has 15,000 employees on
its campus, has been on an 8 a.m.-to-5 p.m. schedule since the
mid-90s. Says Gautam Reddy, Biocon's HR head: "The new timings
have received a good response from all the employees, since they
spend less time stuck in traffic and get to spend quality time
with their families." The only problem: If more companies
switched timetables, the Hosur Road stretch will be back to square
"We Are A Big Ambassador For India"
the CEO of HSBC group Investment Businesses,
Alain Dromer oversees $246 billion or Rs 11,07,000 crore
in assets (as on June 2005). Recently in India to attend HSBC's
global management committee meeting in Mumbai, Dromer spoke to
BT's on the India
Any particular reason for holding the
meeting in India?
We strongly believe that the potential in
India is huge. We are a big ambassador for this country in the
global stage, having put forth Indian equity fund in our global
range, called Global Investment Fund (gif). We have sold the fund
all over the world and I want my colleagues who are selling the
fund in different countries and regions to take a look at what
this country is becoming and to feel and touch as to what is happening
in the country.
What is the function of HSBC Investment
I am part of the Group Investment Businesses,
which supports the group clients (ranging from institutions to
banks to individuals) when they develop investment products. When
these customer groups need to sell investment products like insurance
or credit cards, they approach us for developing the product anywhere
in the world.
What type of Indian products are you managing
and offering to your investors?
Locally, we are managing all types of asset
class and are trying to expand the product basket. We have global
teams that are managing Indian instruments by way of global and
Asian bonds that have Indian exposure. In global emerging markets,
we have created equity instruments like the BRICS fund. In general,
there is an exposure to India and Indian products in many different
ways. The group has a strong confidence in India as a long-term,
fast-growing story. We are also considering multi-manager fund-of-fund
in India. We would also definitely consider developing equity
here, as there are interesting propositions in India.
Do you see future growth in India for
HSBC from high networth individuals (HNIs)?
Yes. We are setting up our portfolio management
services in India as we see huge potential inflows from HNIs.
The hiring process is on and the PMS (portfolio management services)
business will be under HSBC Asset Management.
How much do you recommend your overseas
clients invest in emerging markets?
There should be a lot of precaution, and
investment of 10-15 per cent in emerging markets is a rough estimate.
Individual ability to take risk and his investment time horizon
will decide the exposure to emerging markets. However, in 2006,
we are overweight on emerging markets because they are expected
to give higher return than other markets.
How do you look at the valuation of Indian
Indian market is well valued, if not over
valued. It's not opportunistic compared to markets in China and
Russia. 2006 will be bumpy for the Indian market, unlike 2005,
which was very peaceful. However, 2006 will be the year for equities
in Asian emerging markets. India is so very important that we
cannot make any predictions about it. We are committed to India,
which is why for our budget in 2006, India is a place where we
have the highest growth of head counts. We are optimistic as India
has huge potential. We have only scratched the surface.