4 Corporate
SCI Cancels
Spot Shipment
Deal with IOC
OUR BUREAU
MUMBAI
Shipping Corp of India (SCI) has cancelled a
spot shipment contract with Indian Oil
Corp (IOC) after European insurers refused
to provide coverage for the vessel carrying
oil from Iran due to sanctions imposed by
European Union on the oil-rich nation, raising the possibility that the state may have to
extend sovereign guarantees. The central
government is looking at providing sovereign guarantees for its shipping lines and
buying Iran oil on a delivered basis to ensure
cargoes from July, former shipping secretary K Mohandas had said last week.
In an interview to ET in
February, S Hajara, chairman of SCI, had said soverSCI forced to
eign guarantee is the only
drop
way forward as the compaFebruary
ny was finding it increasdeal as
ingly difficult to get P&I
European
cover for their vessels.
insurers
In January, the EU anrefuse to
nounced sanctions that
provide
prohibit European insurecover for
rs from indemnifying
vessel
ships carrying Iranian
carrying oil
crude and oil products
from Iran
anywhere in the world.
Though the sanctions are expected to come
into effect by July 1, the protection and indemnity clubs are already declining insurance covers for vessels travelling to Iran.
Iran is the second-biggest supplier of oil
to India, with more than $11 billion a year
in shipments and meeting nearly 12% of
India’s crude import needs.
“For a Feb loading for Indian Oil, we could
not get the protection and indemnity cover
for our vessel on time. Since it took time, IOC
decided to ship it by another carrier,” Sunil
Thapar, head of tanker division at SCI, told
ET. SCI, the country’s largest shipping firm
by fleet size, is a preferred carrier for the Indian oil companies in the spot shipping market. While SCI has not tied up on long-term
charters with oil companies, it has been active in the spot shipment market.
THE ECONOMIC TIMES | MUMBAI | SATURDAY | 3 MARCH 2012 *
Cos Bill may Force Out many Ind Directors
CAs, lawyers, senior
pros with financial
links may lose board
seats under new law
APURV GUPTA
MUMBAI
L
awyers, chartered accountants, management consultants and other senior professionals may be stripped of many
plum assignments once Parliament passes the new Companies
Bill, 2011. The law, once changed,
will make it difficult for them to
hold board positions as independent directors of companies with
which their firms have a significant business relationship.
Clause 149 of the Companies
Bill, 2011, states that an independent director must not have
“any pecuniary relation” with
the company, amounting to 10%
or more of the gross turnover of
firm the professional belongs.
Clause 49 of the stock exchange
listing agreement disqualifies
persons from becoming independent directors if they share a
‘material’ pecuniary relationship with the company. But, it
does not define what constitutes
‘material’.
“Currently, companies have
business relationship with directors as many independent directors are partners of a law firm
that provide services to the companies on which they are independent directors,” says Shriram Subramanian, managing
director, InGovern Research Services, which advises institutional investors on voting strategies
on specific resolutions.
Subramanian adds that the Bill
should have also prevented the
firms from having any kind of pecuniary relationship with firms
rather than only capping it to a
certain level. Any direct or indirect pecuniary relationship
should make the person ineligible for appointment as independent director.
There are regulatory concerns
as independent directors chair
key committees like audit, remuneration or investor grievance in some companies.
SIAM Flays Govt Move to
Increase Tax on Diesel Cars
NEW DELHI SIAM lashed out at the government
for trying to impose higher tax on Indian diesel
cars, while preparing to cut duties on those imported from Europe. Expressing concern that
India may be giving away too much in the proposed free trade agreement with EU, Society of
Indian Automobile Manufacturers (SIAM) said
that cutting import duties will not result in any
benefit to auto makers.
‘30% Sourcing Clause in
Retail a Concern’
NEW DELHI Expressing concern over the 30%
sourcing clause for foreign firms to operate
single brand stores in India independently,
Adidas said the condition will be difficult to
meet for it as well as its sister concern Reebok.
“The clause of 30% mandatory sourcing from
small and medium enterprises is a concern,”
Adidas India MD Subhinder Singh Prem said.
Obama Blames India,
China for Oil Price Spike
WASHINGTON US President Barack Obama
sought to blame burgeoning growth in India,
China and Brazil for the raising oil prices in a bid
to deflect the criticism of the Republicans in an
election year who are attributing the surge to
his failed energy policy. Citing rising auto sales
in these countries, he said as people in India and
China get wealthier, they will buy more cars.
IDBI Bank to Raise
.̀ 5,294 crore
NEW DELHI IDBI Bank said it would raise up to
`. 5,294 crore from various means, including
share sale to government and LIC. The board of
the bank in its meeting on Friday fixed issue
price of `. 112.99 per share for preferential issue of shares, IDBI Bank said.
DataWind Bags UK’s Most
Innovative Mobile Co Award
BARCELONA DataWind has won the Smart UK
Project award from the UK government for the
nation’s most innovative mobile company, beating competition from the other three finalists
Blippar, P2i and QRpedia. The competition run
by UK Trade & Investment (UKTI), began its search for UK’s most innovative mobile company
in November 2011. The winner was announced
at Mobile World Congress at Barcelona this week. UKTI is a government department that helps
UK-based firms succeed in the global economy.
DataWind has developed and manufactured
the $35 Android powered Aakash tablet.
iant Chemicals, Pfizer India,
Century Enka, Abbott India, Piramal Healthcare, Wockhardt,
Lupin, Bombay Dyeing and
BASF. He also chairs the audit
committee at P&G, Clariant, Piramal Healthcare, among others.
The audit committee is expected to provide an independent reassurance to the board through
its oversight and monitoring
role. But according to Prithvi
Haldea, CMD, Prime Database, it
is a myth that all audit committees can deliver wonders. “Most
of the independent directors are
appointed by the promoters…nothing meaningful should be
expected from them.”
However, companies also pick
independent directors who are
reputed in their areas of expertise and people whom the entity
and the promoters can trust
more than other consultants,
particularly if they have business relation with rivals. For instance, the 76-year old chartered
accountant Bansi S Mehta’s firm
offers professional advice to companies where Mehta holds board
positions. P&G and Pidilite are
few such companies.
Blame Game Begins After
ONGC Stake Sale Debacle
Sebi sets up committee
to look into the fiasco
OUR BUREAU
MUMBAI
In A Nutshell
Any financial/pecuniary relationship can be seen as a compromise to independence because
what may not be material to the
company can be material to an individual or the firm, where the
individual is a partner. But it’s a
debate that is unlikely to end in a
hurry. According to RA Shah, senior partner at Crawford Bayley
and a director in several top
firms, independence is a trait of
character. “Just as you cannot
legislate on character, you cannot legislate on independence. It
is an intangible state of mind, attribute and culture, says Shah.
“The law”, he says, “already
provides that a director who is
concerned or interested in any
contract or arrangement must
disclose interest to the company; his interest shall be recorded in a register of contracts
which shall be open to shareholders for inspection; he must not
participate in any discussion
on such transaction at a board
meeting and he shall not vote on
such resolution.”
Shah is on the board of 13 companies, including some companies like Asian Paints, P&G, Clar-
‘Success has many fathers, failure is an
orphan’ is how an investment banker
chooses to sum up the blame game that is
ensuing after the debacle of ONGC’s public issue on Thursday through the newlyintroduced auction process.
The government, red-faced after Life Insurance Corp (LIC) had to bail it out in a
marque public offering like ONGC, is
pointing fingers at the bankers to the issue, in private, for their inability to live up
to promises of bringing in top global
funds. The capital market regulator is
learnt to have constituted an internal
committee to look into the matter. A team
from Sebi’s surveillance department will
prepare the report after interacting with
exchange officials, brokers and Stock
Holding Corporation.
The bankers, in turn, are blaming the
government for not heeding their recommendations to price the issue at a discount. The bankers have indirect support
from the oil ministry, which has criticised
the disinvestment department for the
lack of broader investor participation.
Bankers said the main reason for not being able to rope in top global investors was
the government’s decision to price the issue at a premium to the market price.
“The government got a little too confident of pushing through the issue without leaving anything on the table for investors,” said a banker familiar with the
matter. The government fixed the floor
price of the offering at `. 290, despite bankers suggesting `. 275. “Marketing of the issue was done, but after the floor price was
announced most of the FIIs were not interested at that price,” the banker said.
A government press release on Friday
said exchanges received valid bids for
42.04 crore shares and the volume weighted average price, which is the indicative
price, has been fixed at .̀ 303.67 a piece. Investment bankers said another reason for
the lack of broader participation in the
ONGC auction was that the ‘indicative
price’ — the price at which maximum bids
have come — was not announced even half
an hour before the closure of the issue.
“Many investors, who wanted to bid were
waiting for the indicative price to come up.
As the exchange did not put it up, they
didn’t get any direction,” said another se-
nior banker with large domestic bank.
The exchanges were unable to put up an indicative price as the bids were marginal to
derive this value, bankers said.
Exchange data at 3:20 pm on Thursday
showed that the ONGC issue had received bids for only 1.44 crore shares of
the 42.77 crores that were up for sale.
Bankers said the prospect of the issue being undersubscribed spread panic within the government, following which LIC
came in at the last moment to bid for a
large chunk of the issue. LIC’s stake in
ONGC will be close to 8% and they do not
need any regulatory approval till 10%.
The additional secretary in the department of disinvestment, Siddharth Pradhan said, in a press meet on Thursday,
technical glitches took place because
many bids came in at the last moment and
the system could not cope up. Government sources said the offering got bids
worth .̀ 2,500 crore after the issue closed,
but could not be accepted as they came after trading hours. Stock exchanges deny
this. “While the buy orders at both exchanges reflected a demand of 29.22
Inability of
shares around the market
LIC to bring
close, there were certain
in additional
buy orders, which were
money
not immediately conimmediately
firmed or were erroneto execute
ously rejected by custothe bid could
dians due to a mismatch
have
at the custodian end, even
resulted in
though, the orders were
the
funded,” NSE and BSE, in
custodian
a joint press release said.
rejecting the
Bankers said the custoorder when
dian, who rejected the orasked by the
ders, could be pulled up in
exchange
the blame game. But,
some feel the custodian may not be at
fault as it had stuck to the rules.
A banker said this is what would have
happened: When LIC decided to bid additionally for the ONGC issue at the last moment, it would not have had the entire money in its account. Rules require
institutional investors to bring in the bid
money upfront. After an institutional investor makes a purchase through the stock
broker, the exchange checks with the custodian or the clearing member on whether
the investor has deposited the money for
the trade or not. If the custodian says the
money has not been set aside, the exchange
has the right to cancel the trade. The inability of LIC to bring in additional money immediately to execute the bid could have resulted in the custodian rejecting the order
when asked by the exchange.
The Story Unfolds
The government is pointing fingers
at the bankers to the issue, in private,
as they were unable to bring top
global funds
The bankers, in turn, are blaming the
government for not heeding their
recommendations to price the issue at
a discount
The bankers have indirect support
from the oil ministry
Probable reasons for the failure
Bankers said the main reason for
not being able to rope in top
global investors was the govt’s
decision to price the issue at a
premium to the market price
Lack of ‘indicative price’
even half an hour prior to the
closure of the issue may have
resulted in less participation
`290
`275
Suggested floor
price by bankers
Govt-fixed floor price
Valid bids received by exchanges
42.04 Cr
Bids received by exchanges at 3:20 pm on Thursday
1.44 Cr
Total no. of shares up for sale
42.77 Cr
Figures show no. of shares
iGate’s Plan to Delist
Patni Computer Hits
Regulatory Hurdle
Sebi wants the
Nasdaq-listed co to
reduce the promoter
stake to 75%
APURV GUPTA
MUMBAI
Intermediaries representing the
US-based iGate have been working
overtime, knocking at the doors of
the capital market regulator to secure its approval for delisting the
shares of Patni Computer Systems
from Indian bourses.
iGate’s plans to delist Patni is said
to have run into regulatory hurdles as Sebi wants it to meet the
25% public shareholding provision for listed firms. This may require the Nasdaq-listed firm to
lower its stake in Patni to 75% from
about 83%, investment banking
sources said. “We are waiting for
all regulatory approvals after
which we will take a decision on
the delisting offer,” iGate Patni
CEO Phaneesh Murthy told ET.
Early this year, Murthy had said
the company had received all approvals for delisting. Acquirers have
to seek clearance from stock exchanges to delist shares. Sebi steps
in only if it feels that the acquirer
is not following any provision.
Sources say the acquirer did not
anticipate intervention from the
regulator, which stepped in after
some investors complained. Sebi
did not respond to ET query. Kotak
Mahindra Capital, manager to the
offer, also did not respond.
In March 2011, iGate deleted delisting provision from its open offer, which, sources say, was one of
the “pre-conditions” for approval
of its open offer. Later, Murthy said
the promoters would bring down
the shareholding to 75%. However,
in November, it went ahead with its
delisting plan without reducing
the shareholding.
“Amended SCRR provides that if
public shareholding in a listed
company (other than a public sector company) falls below 25%, it
shall increase this to a minimum of
25% in one year from the date of
fall,” Pankaj Jain, associate director, BMR Advisors, said.
Murthy now says as per the open
offer document, the acquirers also
reserve the “right to streamline/
restructure… the target company
through… demerger/delisting.”
Sources say inclusion of this
clause is not common, but it was a
part of the recent Camlin open offer,
which was also managed by Kotak
Mahindra Capital. iGate is using
the same line of defense to convince
the regulator to allow it to delist
without paring shareholding, say
sources. However,
investment bankers feel that this
US-based
may lead to general
funds that
hold about 9% statements superseding regulations.
stake in Patni
may also play Murthy said if the
company does not
a crucial role
get the delisting
in delisting
nod, it will comply
with all norms for a listed company.
Another factor that could spoil
iGate’s delisting plan is Patni’s
stock price, which is trading at
`. 480, higher than the budgeted
amount of about `. 450. “While we
want to delist, we have taken a
credit of $215 million and would be
guided by this limit,” Murthy said.
Significantly, while iGate paid `. 503
a share to acquire Patni, it now
feels that any price above `. 450 is
too high. Further, US-based funds
that hold about 9% stake in Patni
may also play a crucial role in delisting. A high asking price may
change the outcome whenever the
reverse book building process
starts. Most of the recent delistings have concluded at a huge premium. Despite all the uncertainty
surrounding its delisting, Patni’s
shares continue to trade firm.
UPNESH
ARUN KUMAR
NEW DELHI
State-run banks, which have always participated in issues of government equity,
abandoned Oil and Natural Gas Corporation (ONGC) auction on Thursday because
of a liquidity crunch, and they feared they
would book losses on March 31 if share
price fell.
In contrast, most state-run banks had aggressively bid for the IPO of MCX. Chairmen of two public sector banks told ET
that the sudden announcement on February 28, that ONGC’s shares would be auctioned after two days, left them with limited options because barely four days earlier
most of them had applied for shares of
MCX that was oversubscribed 52 times.
“Since they did not receive the refund, entire application money was being considered as exposures in the capital market,”
one of them said.
Unlike a public issue of shares, where investors get enough time before investing in
shares, the auction process gave them no
time, he said.
However, a top investment banker, advising the ONGC on auction issue, disagreed.
He said state-run banks could have participated in the issue but stayed away fearing that when they close their accounts on
March 31, they may book losses on the investment if the price of ONGC’s shares fell
below the auction price.
A top lender agreed. “The financial year
is coming to an end, and any investment
needs to be treated on mark-to-market basis. It was expected that ONGC’s share
price will come down below `. 290, and any
loss would have directly affected the bottom line of the bank,” said the head of another state-run bank.
“Banks are under severe liquidity crunch
and they are finding it hard to meet the disbursement commitment to borrowers.
This makes it difficult for them to make
long-term investments in the capital market,” the banker said
Bankers advising the government said
that there were hardly any bids from the
banks, and Life Insurance Corporation of
India put in a bid for 40 crore shares as
against total offer of 42.78 crore shares.
Such hikes will help in addressing inefficiencies in the system, says Daimler India CEO & MD Marc Llistosella
Daimler India Commercial Vehicles, the Indian
subsidiary of the global
leader in truck manufacturing Daimler, will support any move to hike
diesel prices and increase excise duties on diesel vehicles. Marc Llistosella, CEO and MD, said
he is opposed to subsidies and that such hikes
would work toward addressing inefficiencies in
the system. On Friday, in Hyderabad, the company unveiled nine trucks under the BharatBenz
brand, the first-ever country-specific brand it
has had globally. Over the next 20 months,
Daimler India plans to roll out 17 more models in
the 6-49 tonne category, produced from its
with a firm whose partner is an
independent director on the company’s board even if it is not ‘material’ as per the company.
GMR Power Wins
.̀ 537-cr Payment
‘Cash Crunch Made Banks Desert ONGC’ Case against TNEB
‘We’ll Support any Move to Hike Diesel Prices’
Q&A
A study by InGovern suggests
that there are over two dozen
companies where the corporate
has a pecuniary relationship
Chennai factory in which it has invested `. 4,400
crore. Here are edited excerpts from an interview with CR Sukumar:
What is your game plan for India?
For us, it is important to get into the market and
get into the psyche of the people. We have high
inspirations for this (heavy trucks) specific market. First we came for just 6-7%. Percentage is always relative. The numbers you referred (of LCV
growth) pertain to Tata Ace and others. It is a very interesting market. There is growth and there
will be growth in the future because it is an entry
ticket to be an entrepreneur. But a ‘me too’ is not
ours. In trucks, heavy trucks, real trucks, we are
market leaders in the world. So, we are first tar-
geting where we are good at. And in the end if
there comes a chance, we are open to it.
Any plans on augmenting diesel engine
capacity?
The capacity can be whatever the market needs.
We have the state-of-the-art diesel engine capacity near Chennai and we can produce some
30,000 units now. We can go up to 50,000 units,
which would depend on the market demand.
What is the status of the plans to shift the
mining truck base from Pune to Chennai?
It will be shifted by end of second quarter of the
current year. And then we will have CKD (completely knocked down units) production in
Chennai.
How do you look at the potential headwinds
for the Indian automobile industry in the form of hike in diesel prices and excise duties?
We welcome it. You will see the logistics costs
will go up. That means all inefficiencies have to
be targeted. It cannot be that 42% of local food
output is wasted on the roads. That means waste
of time between states is a no go. Efficiency means in time. Don’t waste. We cannot afford wastages and inefficiencies any longer. The longer
we afford this kind of inefficiencies, we subsidise stupidity. We have to structure hub and spoke, better infrastructure, better systems in terms
of statutory approvals, less administration, less
bureaucracy, and more entrepreneurs.
GMR had a dispute
with TN electricity
board with respect to
power purchase deal,
land lease rentals
OUR BUREAU
BANGALORE
GMR Power Corporation (GPC), a
wholly-owned subsidiary of Bangalore-headquartered infrastructure company GMR Infrastructure, won a `. 537-crore payment due
case from Tamil Nadu Electricity
Board (TNEB) arising out of the
power purchase agreement.
“Appellate Tribunal for Electricity, by its judgment dated February
28, 2012, has dismissed the appeal
filed by Tamil Nadu state electricity board. It had upheld the order of
the Tamil Nadu Electricity Regulatory Commission (TNERC),”
said GMR in a BSE filing.
GMR had a dispute with the state
electricity board with respect to
power purchase agreement, land
lease rentals, among others. “The
case has been going on since 2008
and the Tamil Nadu state electricity board has paid the outstanding,”
said Raj Kumar CEO GMR Energy.
The TNERC by its order dated
April 16, 2010 had allowed the
claims of GMR Power Corporation
and directed TNEB to pay approximately `. 480 crore with interest in
six equal monthly installments.
However, unhappy with the verdict
of the regulator, Tamil Nadu state
electricity board challenged the
verdict of Tamil Nadu Electricity
Regulatory Commission before the
national body in December 2010.
“The payment of `. 537 crore (including interest) received till date
by GMR Power Corporation from
TN Electricity Board by virtue of
interim order of Appellate Tribunal for Electricity (dated November 19, 2010), will be retained by
GPC in settlement of the dues from
Tamil Nadu state electricity
board,” the company said.
The Appellate Tribunal for Electricity order has also adjudicated
on an interlocutory application filed by TNEB, wherein it has directed
that the interest will be computed
on the amount of fuel invoices payable by GPC to Hindustan Power
Corporation on/
for credit periods,
should be paid or
Infra co has a
set-off against pay15-year
ments due to GPC
power
purchase deal from TNEB.
The infrastrucwith TNSEB
ture company has
which ends in
a 15-year power
2014
purchase agreement with the Tamil Nadu State
Electricity Board which ends in
2014 after which the cost structure
will be renegotiated with the
board. GMR has a 200 MW power
plant in Chennai. “We have provision to extend the power purchase
agreement by another five years
and will start discussion in coming
months,” said Kumar. GMR also
has an outstanding dues of around
`. 700 crore from the Tamil Nadu
Electricity Board as on Dec 31.