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TRENDS: LEAD Why Divestment Is A No Go The GOI is showcasing the BALCO sale as an example of divestment detractors turning supporters. But the fact that the sale hiccupped at all, raises fresh concerns among private investors. By Ashish Gupta
That's more bravado than optimism. Far from celebrating the BALCO win, foreign and domestic investors are actually worried that a straightforward deal (the bidder, Sterlite, paid a premium for the majority stake) should have run aground the way it did. While the disinvestment process may not have been derailed permanently, it has suffered a set back by a few years. Points out Munesh Khanna, Partner and Head of Corporate Finance, Arthur Andersen; ''Strategic partners will now be much more careful in terms of documentation of the shareholders' agreement, and impose much more stringent conditions on the government. This is bound to have an adverse impact on the valuation process.''
In fact, the BALCO experience has forced the government to make a not-so-subtle shift in its disinvestment strategy. Instead of seeking out strategic partners, the government is increasingly looking at the initial public offering (IPO) route to sell out. But will the less risky, least controversial, and relatively simple process of offering shares to hoi polloi really do the trick-bring in the Rs 12,000-odd crore promised in the 2001-02 Budget? Not really. A big reason why the government wanted to sell the PSUs to companies, and not to individual investors, was the management skills the new partner would bring. That in turn would have helped realise the latent value in the state-owned enterprises. Besides, a strategic partner would be more willing to buy the PSUs at a premium, because of the business sense the acquisition would make. A public sale will lead to no change in management or management practices, although it may widen the shareholder base. Agrees Kaushik Datta, Partner, PricewaterhouseCoopers: ''There is a premium attached to strategic sale, which is not so in the case of a public offering.'' Even if the government agrees to forego the premium, the primary market may not have the depth to absorb shares of large PSUs such as Indian Oil and Vidhesh Sanchar Nigam Ltd. (VSNL). For example, last year, only Rs 2,467 crore was raised from IPOs. ''You cannot afford to have more than three IPOs a year, because you are basically targeting the same investors,'' says Khanna. For a government lurching from one crisis to another, there seem to be no easy answers to disinvestment. There is no dearth of questions, though. For instance, is there really an appetite among strategic investors even for the profit-making PSUs? If yes, which are these companies and what is the government doing to make the most out of their sale? Analysts are more or less unanimous that it is the oil companies such as the Indian Oil Corporation, Bharat Petroleum, and Hindustan Petroleum, which are on top of the pecking list of foreign investors such as BP-Amco, and Exxon-Mobil. The problem, however, is that the government is still not clear whether it wants to sell these oil companies. After all, offloading 10 per cent of the government's equity stake in IOC has been talked about for a few years now without any result. Then there is another danger. ''With the de-regulation of the oil sector by March 2002 more or less a reality now, the government needs to disinvest, and disinvest fast to reap a good price otherwise valuations of these oil PSUs will suffer,''' says U.R. Bhatt, chief investment officer, Jardine Fleming. Secondly, the other major companies which are high on the wish-list of investors include telecom majors VSNL and Mahanagar Telephone Nigam Ltd (MTNL) and some technology companies like CMC. The government has expressed its willingness to sell 25 per cent of its equity to a strategic partner in VSNL and 1.97 per cent to its employees. And there are at least three bidders in the running: Reliance, BPL and Singtel. A new problem, however, has surfaced. With the Securities and Exchange Board of India accusing BPL of stock rigging, the race may boil down to Reliance and Singtel. It's a no brainer what happens when there is limited competition among bidders. In the case of MTNL, the Minister of Telecommunication, Ram Vilas Paswan, has made it clear that he is not in favour of diluting the government's stake from 56 per cent to 41per cent. That rules out any serious investor interest in MTNL. In the case of other PSUs (See Caught In A Limbo)-such as Maruti Udyog or Indian Airlines-there are some specific issue to be resolved before a sale can happen. But the point is the government can't wait forever to make the sale. With the equation of global business changing every passing day, it may not be long before what's an asset today turns into a painful liability. OFF-BEAT It's a namkeen-maker who oils CSE's wheels. During the recent settlement crisis on the Calcutta Stock Exchange following the Ketan Parekh scam, there was one man who bailed out the exchange with a Rs 200-crore loan. It wasn't a stockbroker-although it was a stockbroker, Sevantilal Shah a.k.a. Manu Manek of Kolkata, who fronted the payout-or even a big industrialist. Rather, it was a namkeen-maker. From the Haldiram Bhujiawala family. Odd? Not if you consider that since the family opened its first shop 54 years ago in Kolkata's Burrabazaar area, it has grown into a national retail chain. The business is closely owned, but estimates are that it generates a staggering Rs 500 crore in business each year. The Burrabazaar store alone is believed to rack up Rs 10-12 lakh every day in sales. ''The Haldiram stores are possibly the largest cash generators in Kolkata today,'' says a family associate and stockmarket operator. So, what do rich people like doing? Simple, get richer. Ergo, the family-now represented by Satyanarayan and Rameshwar Agarwal, sons of founder Ganga Bishan Agarwal-has taken to helping stockmarket operators. The incentive? The supposed 36 per cent interest rate on unofficial badla financing. While badla may now have gone out of fashion, it will be a long time before money does. -Debojyoti Chatterjee STOCKMARKET Racked by controversies, mismanagement and now by the ban on badla, the Calcutta Stock Exchange is teetering on the edge. For the past 37 years, Maheshwar Dalmiya has called the Calcutta Stock Exchange (CSE) on Lyons Range his home. But today, the 65-year-old sub-broker is ready to quit. A man of modest means, Dalmiya is convinced that the recent ban on badla-a system that allowed brokers to carry forward trade-will put brokers like him out of business. Dalmiya's concern is understandable. For long, the CSE has been considered the mecca of badla, with unofficial lending rates touching as high as 36 per cent. To make matters worse, the CSE has been dogged by controversies, arrests, and charges of mismanagement. The once-powerful board of the exchange, now lies disbanded and disgraced. Dinesh Singhania, a top broker, is in prison, and his close confidants and part of the k-company (Ketan Parekh's clique), Ashok Poddar, Harish Biyani, and Sanjay Khemani, are in trouble too. The Calcutta High Court has already ordered the attachment of properties of Poddar and Biyani, but marketmen fear that a criminal investigation could follow. ''Mismanagement coupled with gross neglect of the learning process (non-badla operation) is pushing the CSE towards very difficult times,'' says Amitabh Sonthalia of S.K. Sonthalia Securities. Sonthalia has all but wound up his operations on CSE and is concentrating on NSE and other high-end financial market products. ''My two CSE cards are lying idle and I have little intention of reviving operations there,'' says Sonthalia. S.L. Burdhan, a former president of the exchange, is even more vocal. ''The entire exchange is being held to ransom by a coterie of brokers. Besides, without badla it would be almost impossible for us to generate significant volumes.'' Although CSE Executive Director Tapas Dutta denies it, some other members say that a complete resistance to change and basking in the success of a few large brokers with plenty of financial clout has been the way of life at CSE. And, that's starting to tell. Not only is the exchange horribly out of sync, it is also greatly dependent on outside financiers (See Mr Money Bags?), the men who make badla happen. With the end of the arbitrage following the trading system going online, the market operators are heavily dependent on short-sales and carry-over positions to make their moolah. The badla financiers, who mostly hail from the local trading community, are their lifeline in the sense that not only do they allow the brokers to cover their positions, but they also very often act as short-term phatka players, giving the market some dynamism. Says Binod Mehra, a senior broker on CSE: ''For the best of exchanges, the options are harsh. For the CSE, the end of badla may well mean a disaster.'' Still, the optimists are hoping that the exchange will use this opportunity to purge itself and make a new, better beginning. -Debojyoti Chatterjee SOFTWARE Think Microsoft, and you think what's the catch. But there are none in its new licensing norms. It's not an acronym one would expect to see doing the rounds at software major Microsoft's offices around the world, but the evidence is all there. A concise rendition of nomenclature yielding mnemonics (see, we slipped that bit of trivia in) is the sophomoric kiss, Keep It Simple Stupid, and that's exactly what Microsoft is trying to do with its new licensing rules for 'volume customers'. These are customers with five or more PCs who purchase Microsoft software, and account for 40 per cent of the company's business.
Viewed from one perspective, the new rules will instill some sense and simplicity into a licensing system that has become exceedingly complex. Microsoft did not start out with specific licensing options for enterprises, and just added whatever options companies wanted as and when the need arose. Most customers, then, will pay more or less the same they used to for ms software, although an online licence management system will make their task of managing the software a lot easier. The most radical form the new rules will take is the Enterprise Agreement Subscription, which is restricted to large customers-those with 250 or more desktops. This is essentially a rental-driven model. The company renting the software pays a fixed annual rental to subscribe to the software for a certain period of time and it doesn't have to worry about upgrades in this period-Microsoft will provide them free. ''The Enterprise Agreement Subscription is a first step towards offering software as a service, which is something our customers want,'' says Rajeev Kaul, Managing Director, Microsoft India. This option will obviously appeal to companies that lease out hardware; they can now lease out software and write off the rental as an operating expense not an asset. That, though, won't have much of an impact in India where few companies lease hardware, leave alone software. Enterprise Agreement Subscriptions are also ideal for companies who feel the need to upgrade to the latest software the minute it is available. Individual customers won't be affected by the change: they can continue to buy software the way they have traditionally done, one version for perpetuity. It's really as simple as that. -Ashutosh Sinha TRADE 'Garden teas' are on their way out into foreign markets. For the largest tea-consuming nation in the world, the loss couldn't be bigger. More and more of India's best teas from gardens in Assam, Cachar, and Dooars are cheering consumers elsewhere. The culprit: excessive tea production, worsened by a softening of demand. For instance, India consumes 653 million kgs of tea, but the annual supply is at 860 million kgs. Therefore, instead of cutting prices more than they have to, companies are vending their leaves to newer consumers. Says Shyamal Kumar Mitra, MD, George Williamson Assam, ''The garden teas are becoming popular abroad, and the price realisation is better.'' Mitra's company plans to export almost half of its 20-million-kgs-per-annum production. Others like Warren Tea and Assam Company, who export 3.5 million kgs a year each, also produce grades preferred by overseas blenders and packeters like Twinnings and Tetley. On the whole, 25-30 million kgs of garden teas may get exported in 2001-02, earning Rs 100 crore. Better earnings will help tea companies tackle a serious problem: ageing tea bushes, some of which are 100 years old. -Rakhi Mazumdar
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When the
BALCO stalemate broke on May 8, an ecstatic Minister of Disinvestment,
Arun Shourie, touted the denouement to the 67-day drama as a victory for
the government's troubled disinvestment programme. Pradip Baijal, the
department's Secretary, went a step ahead and declared that the BALCO
settlement would in fact, put divestment plans on a roll.
