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Sunday, October 4, 2015

Debt Recast For Power Discoms: Centre Likely to Put the Ball in States' Court

State Govts Could Take Over 100% Loans; States Wary This May Lead to New Issues

They said the plan would, in fact, bail out banks, whose debt exposure of Rs 3.17 lakh crore (as of June 2015) was feared to turn into non-performing assets (NPAs).

To enable states to take over the entire debt, the Centre will also relax the borrowing limit for state governments. "States are being given a relaxation of 25 basis points to one percentage point in their Fiscal Responsibility and Budget Management (FRBM) limit. This will help them absorb the losses and issue bonds in the short term," said an official in the know of the matter.

The Union Cabinet is likely to approve the new scheme shortly. But most states are still wary that the scheme might create a new set of problems, rather than bailing out discoms. To begin with, the central government is focusing on the eight states that together account for the biggest chunk of the total accumulated debt of Rs 3.17 lakh crore. These are Rajasthan, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Telangana.

In the United Progressive Alliance (UPA) government's FRP, state governments were to take over half the outstanding loans of state power discoms and convert that into bonds backed by state government guarantees. The remaining debt was to be restructured by banks. This time, however, the state government will take over 80-100 per cent of the discoms' debt and convert it into bonds. The rest (if any) will be serviced though technical reforms and tariff increase.

Sources in the know said if a state government failed to honour the bond terms or defaulted on the dividend payment, the Centre would divert the tax devolution amount from that state's kitty to the bond owners.

The tax devolution from the Centre to states is 42 per cent of the total divisible pool offered. A portion of it will be deducted from the Centre's share in the state's revenue and used for paying dividends.

At his meeting with state government officials from the energy and finance departments, Union Power Minister Piyush Goyal said the Centre was ready to relax the borrowing limit for states.

FRBM places limits on the deficit a state can have. A relaxation on this will translate into states being allowed more fiscal deficit in their public accounts. The current FRBM limit is three per cent. The amount of relaxation could vary on the basis of the amount of debt held by the state concerned. For instance, if a state gets 3.25 per cent relaxation, its borrowing limit will be close to six per cent.

"There is no debt servicing by the Centre; only the borrowing limit is increased. But the extra debt that the state government is burdened with and the interest payment that we will have to make annually could cause the state's finances to slip into the red," said a senior state government official who was part of the discussion.

Most states are of the view that this is a temporary measure - in three to five years, either the discom or the state government or both will again be financially pressed.

"The Seventh Pay Commission (recommendations) will come into force from January next year. Then, there also are other factors that will increase states' expenditure. For example, the debt of discoms will further burden us in the state budget," said a senior government official from the Uttar Pradesh government. This sentiment was echoed by officials of other states who were part of the several discussions with the Union power and finance ministries and spoke to Business Standard. They said the Centre could go ahead and make changes to FRBM but the solution was not a long-term one.

The National Democratic Alliance (NDA) government at the Centre is likely to put on states the onus of restructuring the debt of power distribution companies. Under the new financial restructuring plan (FRP) for discoms, the state governments are to take over the entire debt of these firms. Banks and other lenders would not be asked to restructure any part of the loans, said senior central and state government officials.


NDA govt's FRP

  • 100% debt to be taken over by states; if less is taken over, the balance to be serviced through reforms and tariff hike
  • State governments to issue sovereign guarantee bonds
  • No part of debt to be serviced by banks or financial institutions
  • Centre to relax borrowing limit for states
  • If states default on dividend payment to bonds owners, part of their tax devolution fund to be used for payment to bond owners

UPA govt's FRP

  • State government to take over 50% of discoms' debt and convert it into bonds backed by sovereign guarantees
  • The remaining debt to be restructured by banks with a three-year moratorium, or a repayment holiday on principal repayments
  • Madhya Pradesh serviced its debt through bonds in 2011, but this was out of the FRP scheme
  • Tamil Nadu also started a debt-restructuring process
Reference -

Friday, October 2, 2015

India Announces New Climate Change Targets

Subject to finance and tech from rich countries through an ambitious, fair Paris deal

India will also increase its forest cover to create an additional carbon sink of 2.5-3 billion tonnes of carbon dioxide equivalent.

These targets (called the intended nationally determined contribution, or INDC) were presented to the United Nations Framework Convention on Climate Change for the global Paris summit on Thursday. Prakash Javadekar, Union environment and forests minister, released these to the media in Delhi on Friday.

The government has said till 2030, these emission intensity-reduction targets and adaptation to climate change will require about $2.5 trillion, as well as an array of technologies.

It committed to mobilise new funds from developed countries and said it would work to build an international architecture for diffusion of cutting-edge technologies, as well as collaborative research and development in this regard.

The government has pledged to reduce its greenhouse gas emissions intensity — the ratio between a country’s gross emissions to its gross domestic product at a particular point — by 33-35 per cent by 2030, compared to 2005 levels. For this, India has to ensure about 40 per cent of its electricity comes from non-fossil fuel sources.

India, in its submission, said, “The successful implementation of INDC is contingent upon an ambitious global agreement, including additional means of implementation to be provided by developed countries, technology transfer and capacity building, following articles 3.1 and 4.7 of the convention.”

India announces new climate change targets
Article 3.1 refers to the principle of equity and common but differentiated responsibility, as well as the need for developed countries to take the lead in combating climate change. Article 4.7 of the convention says, “The extent to which developing countries will effectively implement their commitments under the convention will depend on the effective implementation by developed countries of their commitments related to financial resources and transfer of technology and will take fully into account the fact that economic and social development and poverty-eradication are the first and overriding priorities of developing countries.”

Javadekar said while a large proportion of funding would come from domestic sources, developed countries were obliged to provide funding and technology. “We were not part of the problem but we want to be part of the solution,” he said, adding on several emission metrics, India was and would remain well below developed-world levels, though it had a huge development deficit to bridge in the coming decade and a half.

India announces new climate change targets
Officials involved in the preparation of the INDC said the caveats were similar to those of other developing countries, to safeguard against the possibility of an adverse outcome at Paris.

In conclusion, the INDC noted, “Through this INDC, India has shown its commitment to combat climate change and these actions are important contributions to the global effort. However, our efforts to avoid emissions during our development process are also tied to the availability and level of international financing and technology transfer, as India still faces complex developmental challenges.”

Not relenting to pressure from some developed countries to undertake sector-specific targets, India has explicitly stated, “It is clarified that India’s INDC do not bind it to any sector-specific mitigation obligation or action, including in the agriculture sector. India’s goal is to reduce overall emission intensity and improve the energy efficiency of its economy over time and, at the same time, protect the vulnerable sectors of the economy and our society.”

In 2010, India had committed that by 2020, it would reduce the emissions intensity of its economy 20-25 per cent compared to 2005 levels. In its 38-page document to the UN climate convention, the Union government has said India will undertake the emission intensity reduction and the changing of energy mix by 2030, “being sanguine about the unencumbered availability of clean technologies and financial resource from around the world”. It adds India will “mobilise domestic and new and additional funds from developed countries to implement the mitigation and adaptation actions in view of the resource required and the resource gap”.

In another section of the document, it lists an array of existing and future technologies India will need to move towards a low carbon-development route.

The INDC begins by listing a wide array of activities India has already undertaken to reduce emissions and adapt to climate change, including the ambitious target of setting up 175 Gw of solar and wind power capacity by 2022 and an enhanced energy-efficiency mission across industrial sectors. It also promises to increase the share of renewable energy in the energy mix, though it doesn’t explicitly mention 300-350 Gw of solar and wind power capacity will be required to achieve non-fossil fuel power capacity of 40per cent, a projection the government has made to arrive at the INDC. The INDC also mentions the initiatives the government will launch, including introduction of new, more efficient and cleaner technologies in thermal power generation, reduction of emissions from the transportation sector, promotion of energy efficiency in industry, transportation, buildings and appliances, and reduction of emissions from waste.


1. Reduction of carbon emissions intensity by 30-35% below 2005 levels by 2030
Effect: India will avoid 3.59 bn tonnes of CO2 equivalent emissions over business as usual

2. To get around 40 % of the installed power capacity from non-fossil fuel-based energy sources by 2030. Currently, it is around 30 %
Effect : 175 Gw of renewable power capacity by 2020 and 300 - 350 Gw by 2030. A 33% jump in non-fossil fuel sources in 15 years

3.Creation of total carbon sink of 2.5 to 3 billion tonnes of CO2 equivalent through additional forest and tree cover by 2030
Effect:  Addition of 680-817 million tonnes of carbon sink

4. Mobilisation of additional funds, both domestic and from developed countries, to implement adaptation and mitigation goals
Effect:  $2.5 trn required for INDC implementation at 2014-2015 prices

Reference -

Wednesday, September 30, 2015

Mega Commercial Deals Boost India's Property Mart

Carnival Group Buys Project in Chandigarh From L&T for Rs 1,785 cr; Abbott Buys Office Space From Godrej Properties for Rs 1,479 cr

India’s property market got a major boost on Wednesday, with two mega commercial deals getting sealed. In the first, multiplex player Carnival group bought a commercial project in Chandigarh from engineering and construction major Larsen & Toubro (L&T) for Rs 1,785 crore. And in the second, pharma major Abbott purchased 0.43 million sq ft of space from Godrej Properties in Mumbai’s Godrej-Bandra-Kurla Complex (BKC) for Rs 1,479 crore.

The two million sq ft mixed-use project in Chandigarh includes a mall, a Hyatt luxury hotel and office space. L&T had put the project on the block one-and-a-half years ago and was in talks with Carnival group for a year or so, sources said.

“It was our strategic decision not to run the malls and hotels,” said Shrikant Joshi, chief executive, L&T Realty, which is also looking to sell its upcoming mall in Navi Mumbai’s Seawoods. The company was in talks with investors, Joshi said.

The acquisition is expected to help Carnival group widen its portfolio and enable it to achieve a leadership position in the retail sector, the company said on Wednesday.

Carnival Chairman Shrikant Bhasi said: “This acquisition is part of asset creation for the group’s investment portfolio. It will help us further expand our capabilities and make inroads into newer markets. This project will be operated as a separate unit, led by its current India-based management team.”

Of late, Carnival Group has been on an acquisition drive. The present one is its third real estate acquisition after Leela Infopark in Kochi and Leela Technopark in Thiruvananthapuram. The group has also bought out the Big Cinemas multiplex business of Anil Ambani’s Reliance Group.

Early this year, the group acquired Glitz Cinemas, which was part of Capital 18, a subsidiary of Mukesh Ambani-controlled Network 18 Media.  Property consultants termed the other deal, in which Abbott bought office space at Godrej BKC from Godrej Properties, one of the biggest office space deals in India.

Ashok Kumar, managing director of property consultant Cresa Partners, said the deal, at Rs 34,000 a sq ft, was higher than the market price. “Abbott paid 10-15 per cent higher than the market price. But since it is for self-use and to house its headquarters, it did not bargain on the price.” Lease rents for office properties hover between Rs 250 and Rs 300 per sq ft in BKC and sale prices are between Rs 28,000 and Rs 30,000 per sq ft.

At the space bought from Godrej, Abbott plans to build the Mumbai office headquarters, which will house 1,500 employees. Godrej BKC, a joint development project of Godrej properties and Jet Airways, is a 1.3-million-sq-ft project.
Mega commercial deals boost India's property mart

“Companies like Abbott or large banks or FMCG (fast-moving consumer goods) companies continue to see India as a large market and they are here for the long term. So, it makes sense for them to buy strategic assets,” said Sanjay Dutt, managing director, Cushman & Wakefield, the advisor for the deal. “Valuations and deal sizes are going to go up in the country. It is just the beginning.”

Pirojsha Godrej, managing director & chief executive of Godrej Properties, said the company would use the proceeds towards debt repayment and explore new opportunities in the property market. Two-thirds of the company’s debt pertained to the BKC project, he said.

 Reference -

Tuesday, September 29, 2015

Rajan Goes For Big-Bang Cut

Repo rate at four-&-a-half-yr low of 6.75% after a cut of 50 bps


  • Repo rate at four-&-a-half-yr low of 6.75% after a cut of 50 bps;
  • SBI cuts base rate by 40 bps to 9.3%; BoI, Andhra Bank by 25 bps;
  • Firms can raise masala bonds; htm SLR cap cut to 21.5% from Jan 9
In his biggest rate move since taking charge as governor of the Reserve Bank of India (RBI), Raghuram Rajan on Tuesday cut the benchmark repurchase rate by 50 basis points to a four-and-a-half-year low of 6.75 per cent. All his previous rate moves, up or down, had a magnitude of 25 basis points.

The rate cut in the year's fourth bi-monthly review of monetary policy surprised India Inc and market players, expecting a 25-bps cut this time, too. The central bank has cut the repo rate by 125 bps since it first started lowering the rate in January this year.

"I don't think we have been excessively aggressive," Rajan told a post-policy news conference, adding falling global commodity prices had helped RBI "front-load" the easing. "Clearly, this was about, given the state of the economy, how can we move forward?" he said, reflecting widespread concern that growth was losing momentum.

Reduction in the policy rate, however, came with a veiled warning to banks that they had reduced the median base lending rate by only 30 basis points, a fraction of the 75-bps policy rate reduction during January-June, despite easy liquidity.

Rajan goes for big-bang cut
Banks took the cue, with State Bank of India (SBI) reducing its key lending rate by 40 bps to 9.3 per cent, the steepest base rate cut by any bank so far. With this, SBI's base rate is lower than that of HDFC Bank, which reduced its base rate by 30 bps to 9.35 per cent earlier this month. Two other state-run lenders, Bank of India and Andhra Bank, reduced their base rates by 25 bps. Both also reduced their deposit rates by 25 bps.

After announcing the base rate reduction, Arundhati Bhattacharya, chairman, SBI, said more scope for a cut in lending rates would emerge, as deposit costs fell. "Going forward, as the book re-prices properly and as we begin to see more credit growth, we will definitely keep looking at ways and means of bringing down the rates further," she said.

Chanda Kochhar, managing director and chief executive of ICICI Bank, said interest rates/base rates would come down, as a large part of the cut would be transmitted. "When I say a large part of the cut will be transmitted, it would mean more than half," she said.

The central bank lowered its near-term inflation projection for January 2016 to 5.8 per cent from six per cent, citing lower oil prices. However, a slower pace of recovery in growth was also projected; the economy is now seen as growing 7.4 per cent in FY16, compared with the 7.6 per cent projected in August, owing to deficient rains, weaker global growth and weak investment momentum in the private sector.

RBI said inflation could inch up, as a favourable base effect waned in the next few months. It, however, added the monetary policy had to be accommodative to the extent possible.

Rajan goes for big-bang cut
Finance Minister Arun Jaitley, who has pushed for rate cuts, welcomed Rajan's decision, saying it "will significantly provide policy support to the real economy and help in the recovery process". His ministry announced a plan to review a small savings programme that competes with banks for deposits, to ensure faster transmission of rate cuts.

India Inc was happy. Mahindra Group Chairman Anand Mahindra said the central bank's move was a right and timely medicine, while RPG Group Chairman Harsh Goenka termed it the silver bullet business had been waiting for.

Analysts said the prospect of additional easing was unlikely for a while, with the focus now likely to shift to a government that has struggled to get its reform policies passed by Parliament.

Markets reacted positively, as the cut in policy rate exceeded their expectations. The benchmark Sensex, which was  about 250 points lower before the policy announcement, ended the day up 161.82 points, or 0.63 per cent, at 25,778.66. The Nifty added 47.6 points, or 0.61 per cent, to close at 7,843.3, as rate-sensitive stocks gained after the rate cut.

"The rate cut has been taken very positively by the market. While all global markets were down, Indian markets closed up. We will get a clearer picture tomorrow (Wednesday), once all the dust settles," said Anoop , head of equities at UTI Mutual Fund.

Bond yields fell sharply on the back of the 50-bps rate cut, as well as measures announced by the central bank to attract more investment in the bond market. Yields on the 10-year benchmark government bond fell 12 bps to 7.61 per cent on Tuesday and are seen further softening to 7.5 per cent by the end of the year.

Apart from setting limits for foreign  in debt securities in fixed rupee terms, the central bank also announced the cap would be increased in a phased manner to five per cent of the outstanding stock by March 2018.

"In aggregate terms, this is expected to provide room for additional investment of Rs 1,20,000 crore in the limit for central government securities by March 2018, over and above the existing limit of Rs 1,53,500 crore for all government securities," RBI said.

The central bank has allowed Indian companies to raise  from foreign markets in rupee-denominated bonds, often called 'masala bonds', a move Jaitley said would provide an additional source of funding and boost investment in the economy.

The bonds will have a maturity period of at least five years at foreign locations, within the $51-billion ceiling of foreign investment in corporate debt. Jaitley said now, companies would also be able to raise external commercial borrowings through rupee-denominated off-shore bonds with no end-use restriction.

In February, RBI had reduced the statutory liquidity  to 21.5 per cent. Now, it has decided to bring down the ceiling on SLR securities under HTM (held-to-maturity) from 22 per cent to 21.5 per cent, effective the fortnight beginning January 9, 2016. Subsequently, both the SLR and HTM ceiling will be brought down by 0.25 per cent every quarter till March 31, 2017.

The weakening of global activity since the last review suggested commodity prices would remain contained for a while, RBI said. "The monetary policy has to be accommodative to the extent possible" to help domestic growth offset weakness abroad, Rajan said, adding "capacity utilisation was still tepid and domestic private investment needed to pick up".

Significantly, Rajan directly linked the need for monetary stimulus to a revival in growth. "Investment is likely to respond more strongly if there is more certainty about the extent of monetary stimulus in the pipeline," he said.

Reference -

Monday, September 28, 2015

Soon, New Products in Commodities Derivatives

Sebi assures it will put in place a framework for listing of stock exchanges

The Securities and Exchange Board of India (Sebi) on Monday took over the reins of the commodities derivatives market. Assuaging concern that surveillance and regulation would assume priority over development, Sebi Chairman U K Sinha said new products and participants could be introduced in a few months.

At an event at which Finance Minister Arun Jaitley formalised the merger of the Forward Markets Commission (FMC) with Sebi, the market regulator said it was open to allowing products such as options and index futures in the commodities market, as well as new participants such as banks and foreign portfolio investors.

“Our immediate focus is to ensure stability and credibility in the commodities markets and ensure there are no disruptions in the functioning of commodity exchanges,” Sinha said. “Our efforts would be to move in a cautious direction to ensure we provide some comfort to the market and to all participants, that the way transactions in commodities futures are at least as robust as they are in the securities market.”

Jaitley said, “The merger will increase the economies of scope and scale, as there are strong commonalities between all kinds of trading. I am sure Sebi is prepared to regulate the commodity derivatives market.”

Shaktikanta Das, secretary in the Department of Economic Affairs, said “A balance is needed on price stability and policy certainty. Sebi has to ensure prices do not become volatile and, at the same time, also see that there is policy certainty.”    

The market regulator also assured it would soon put in place a framework for listing of stock exchanges. Following the Sebi-FMC merger, India's only listed bourse, the Multi-Commodity Exchange, will de facto be listed under Sebi regulations.

The regulator is set to come out with additional guidelines for listing of exchanges. "We were waiting for the merger to happen first," Sinha said.

Established in 1953, FMC oversaw the commodities market for about 60 years. It, however, lacked various powers, which resulted in inadequate surveillance and alleged irregularities in this segment. To check these, a merger with Sebi was proposed 12 years ago and, subsequently, by two reports — one by a finance ministry-constituted panel and the other by the Financial Sector Legislative Reforms Commission. In 2010, the government also proposed amendments to the Forward Contracts and Regulations Act (FCRA).
  • Sebi will handle all legal cases FMC is party to
  • New investors such as FIIs, banks and institutions await ministry clearance
  • Commodities brokers to adapt to Sebi regulations in a year
  • Commodity exchanges to touch a net worth of Rs 100 crore by 2017
  • Exchanges will corporatise and demutualise in a year
  • Exchanges to segregate regulatory department from others in six months
  • Such exchanges will have oversight, product committees in three months
  • 3 national exchanges are active, along with 3 regional ones; no trading at 3 national exchanges
  • 3,000 commodity brokers are members of national exchanges and 450 of regional bourses
  • Rs 26,000 crore is the average daily turnover, against Rs 42,000 crore two years ago
  • Rs 115.6 lakh crore was the aggregate volume of all exchanges in FY14; in FY15, this fell to nearly half; in the first six months of FY16, it stood at Rs 33 lakh crore

“In the present form, the Act did not adequately address regulatory requirements. There was a need for efficient regulation of the commodity derivatives market. There were two possible approaches to address the issue --- by amending the FCRA on the lines of the Securities Contract and Regulation Act or by merging the two regulators. The second approach was preferred by the government," Jaitley said. He, however, added Sebi would face challenges in regulating commodities, as underlying assets wouldn't be under its control. Spot trading in agri commodities has to adhere to state regulations.

The finance minister said the merger would widen the size and scope of markets, adding Sebi must ensure commodities trading was free of speculation.

Sinha admitted in the past, Sebi had made mistakes. "As far as commodity markets go, we will try to avoid making mistakes, avoid taking mis-steps. We will try for better convergence of prices from the physical side," he said.

Sebi would also put in place a mechanism for new entities seeking to do business in both securities and commodity markets, Sinha said, adding the focus was to ensure high-quality physical delivery would be the new regulator authority's starting point. "We will have ensure a balance between market development and deepening the market."

Sebi has created a separate commodity derivatives market regulation department for exchange administration, market policies, risk management and products and handling of inspections and complaints in this segment. Additional divisions for intermediary registration, surveillance, investigation, enforcement, regulatory assistance and research have been set up within existing Sebi departments.

Ramesh Abhishek, the outgoing chairman of FMC, said, "This will help substantially in bringing better regulation and discipline in the market by using regulatory resources and Sebi's powers. The merger will also pave the way for development of the commodities market to its true potential."

 Reference -

Sunday, September 27, 2015

Modi, Obama Bilateral Meet to Focus on Tough Issues on Monday

Narendra Modi would be sitting for his third bilateral meet with US President Barack Obama, even as both sides would be eyeing a tough agenda

After a hectic schedule, Prime Minister Narendra Modi is going to end his visit to the US on a high note on Monday. He would be sitting for his third bilateral meet with President Barack Obama, even as both sides would be eyeing a tough agenda.

In the span of a year, both leaders have held dialogues thrice. However, this time India would play its card rather cautiously, with US heading for presidential elections in 2016.

Matters related to trade and investment is expected to dominate the agenda for the meeting. The visa row between India and US is on the top of Modi's agenda. It has been learnt that India would be making a strong case in front of the US to bring down the cost of H-1B professional visa fees, of which the Indian IT industry is the biggest beneficiary. The H-1B and L-1 visas cost $2,000 and $2,250 respectively.

According to a report released by the minister of commerce and industry, Nirmala Sitharaman, during the US-India Strategic and Commercial held last week in Washington, the revenue generated from H-1B and L-1 fees is utilised in paying for healthcare compensation.

Besides, according to sources, Modi might also directly ask the US president to sign the long pending Totalisation Agreement. Both sides have been discussing the pact for over a decade now. Due to the absence of this agreement, Indians working in US are unable to claim their social security contribution at the end of their stay there.

US on the other hand, is going to discuss India's preparedness in coming out with a robust IPR policy, a long-standing complaint of the American firms working here. US is also planning to urge India to begin negotiations for a free trade agreement between the two.

Recently, the Alliance for Fair Trade with India (AFTI), a grouping created by some of the leading US business chambers, wrote a letter to Obama.

In the letter, AFTI has stated that India imposes barriers like forced localisation measures, excessively high tariffs, unnecessary regulations that "discourage globally competitive U.S. industries from participating fully in India's economy, which would enable these sectors to spur domestic growth."

On the PM's Digital India programme, the US industry has said in order to make it a successful campaign, India should revise policies that discourage broadband investment like tariffs and onerous testing requirements on imported information and communication technology products.

India and the US have decided to take the two-way trade in goods and services to $500 billion by 2020 from $100 billion now.


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