News As We Read- 12th Aug'13

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Following made the Headlines:

India:

• Foreign A/Cs Linked to Biz Honchos Under Sebi Lens: India’s capital markets regulator, Securities and Exchange Board of India (Sebi), is conducting a wideranging investigation into the use of funds parked in undisclosed overseas bank accounts allegedly owned by several prominent promoters and CEOs, a person privy to the investigation told ET. The tip-off on the accounts and transactions using the money in them came from the Financial Services Authority (FSA), which was the regulator for stock markets and financial firms of the United Kingdom till April this year, the person said. Sebi is believed to be probing charges of stock market manipulation and possible insider trading. The businessmen under scrutiny span a variety of sectors, including liquor, mining, real estate, media & entertainment and infrastructure. In all, as many as eight individuals are being probed, said the person quoted earlier. ET is not publishing the names or the alleged account numbers of the individuals because the investigation is ongoing and no regulatory body has come out with a definitive finding. The information from FSA is believed to have been sent to Sebi more than a year ago. The accounts were allegedly held in the London branch of UBS. A Sebi spokesperson declined comment on specific queries or the names of individuals sent by ET. “As a matter of policy, Sebi does not comment on matters relating to investigations. Orders passed by Sebi based on outcome of investigations are made available on Sebi website,” the spokesperson said.

• PE Investors All Dressed Up but Nowhere to Go: Atul Nishar, founder of Hexaware Technologies, has been planning an exit for private equity investor General Atlantic for at least 12 months now. The PE fund’s 300-crore investment made at 142 a share seven years ago is now trading at 118 a share. “Whenever GA wants to sell its stake, we will help find a suitable PE fund to buy it,” says Nishar. Bankers were appointed a while ago to squeeze out an exit. A secondary offer was considered, so was a sale to another PE fund (called a secondary sale). But an exit is nowhere in sight. The corporate landscape is littered with hundreds of such examples. PE investments in some 630 companies are four or more years old, according to estimates by Anand Rathi Investment Banking. Many of these investments are crying for exits. Typically, private equity funds follow a five-year investment cycle, with an additional year occasionally thrown in to ensure returns. The problem has been simmering for a while, but matters have come to a head now, with the 14% depreciation of the rupee against the dollar in four months further eroding investor value. The PE industry is in a bind. Limited partners (LPs) — institutions that put down the money that PE funds go on to invest — are growing impatient. But a bleak economy and muted stock markets have slammed the door on their exit plans. And the rupee depreciation is eroding value fast — all leading to a pressure cooker situation. “PE as an asset class will die if there are no exits,” says Praveen Chakravarty, chief executive officer, Anand Rathi Investment Banking. Over $50 billion has been invested by PE companies in India in the past 10 years, but only $16 billion has been returned, according to VCC Edge and Anand Rathi Investment Bank.

• Indian Travellers Upbeat Despite Rupee Fall: Survey: The falling rupee has hardly dented the enthusiasm of Indian travellers, says a new survey, with 63% of respondents eager to pursue holiday plans despite the potential spike in costs due to the currency depreciation. The optimism of travellers stems from their belief that increased competition by airlines on domestic and international routes and attractive discounts by hotels and airlines will cushion the impact of a weak rupee, reveals a survey by online travel company Yatra. As much as 37% respondents said they would not compromise on sightseeing, followed by shopping and food, a sign that holidays are increasingly becoming a fixture in annual household budgets. The survey was conducted among 6,000 individuals, of which 84% were either professionals or self-employed. Sharat Dhall, president at Yatra, said the findings of the survey are significant because it shows people will not compromise on travel or preferences during travel no matter what. “The findings are pleasantly surprising,” he said. International travel has become costlier due to a weakening rupee because one has to pay more for hotel accommodation, shopping, eating out and air tickets. To cite an example, a $200 hotel room that cost 9,000 (at 45 against the dollar) in August 2011 would now cost 12,400 (at 62 against the dollar). That is an almost 38% increase in two years. Despite this, according to Dhall, Yatra’s international travel transactions grew 45% in the first three months of this year from a year ago. “That is partly because most of the bookings happened before mid-June when the rupee took a big hit,” he said. The rupee has depreciated 13% since May. Dhall conceded that there is some off-season impact on transactions currently. “That said, I can’t make a judgment because the complete picture will emerge only in October-November,” he said. Travel portals, he said, are also looking to offset the impact of the rupee fall by increasing offerings to more countries. Travellers have also turned smart. Dhall said there is an uptick of travellers to destinations such as South Africa and Australia where the rupee’s impact has been minimal because currencies of those countries have also been falling.

• Govt May Relax FDI Norms for Realty Push: The government is considering sweeping changes in the foreign direct investment (FDI) norms for the real estate sector to boost fund flows to the cash-strapped sector as well as to bolster the battered Indian currency. The urban development ministry has suggested that real estate firms with less than 50% foreign ownership be exempted from all current restrictions, including the minimum area norms for development of projects. “Foreign investment up to 49% should be free from condition to attract foreign capital providers, which do not have long-term interest in construction assets. This will also enable real estate players to raise foreign capital at competitive rates and reduce dependency on the already strained domestic financial institutions,” said an internal document of the ministry that has been reviewed by ET. A similar free run has been suggested for foreign investment in urban renewal and slum re-development projects while major relaxations have been proposed for foreign investors picking up over 50% stake. Some of the proposed relaxations for such investments are reduction in the minimum land parcel size for plotted development to 5 acres (2 hectares) from 10 hectares now and permission to purchase farmland for FDI funded firms. In case of construction-development projects, the present requirement of minimum built-up area of 50,000 square meters will come down to 25,000 sq meters. “In case these proposals materialise, it would be a much-needed shot in the arm for a sector that has the potential to create huge employment opportunities,” said Amit Bhagat, MD & CEO of ASK Realty Fund. “This will be a very positive move for attracting foreign capital to the fund starved sector. It will help in developing requisite infrastructure for retail and commercial establishments, aiding job creation,” he added.

• Lenders take over Mumbai office of Kingfisher Air: Lenders to Kingfisher Airlines on Saturday took possession of Kingfisher House—the erstwhile corporate office of Kingfisher Airlines (KFA) near Mumbai airport’s domestic terminal. The move is part of the lenders’ moves to recover Rs 6,072 crore along with interest. A SBI Caps trustee took physical possession of the 25,850-sq ft plot, which includes the office premises of over 17,072 sq ft, situated on the Western Express Highway. A notice announcing this was pasted on the building’s doors. SBI Caps, on behalf of the lenders, had issued a notice to KFA under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act on May 3, 2013. The notice is a precursor to acquiring a defaulter’s property under the Act. “The Act says that if the borrower fails to repay within 60 days of the notice, lenders can take possession of assets and dispose of them,” said a bank official who is among the lenders to Kingfisher Air. Banks have already recovered some money selling shares and would also look at attaching other physical assets, including Kingfisher Villa in Goa, the official added. Besides attaching property, lenders are invoking corporate and personal guarantees provided by Vijay Mallya as part of their efforts to recover their money. State Bank of India has the largest exposure of over Rs 1,600 crore followed by Punjab National Bank and IDBI Bank which have an exposure of Rs 800 crore each. Bank of India is seeking to recover Rs 650 crore.

• Jet Airways plans big fleet expansion from 2018: Naresh Goyal-promoted Jet Airways (India) Ltd will introduce 50 new fuel-efficient Boeing 737 MAX planes and expand aggressively from 2018 onwards, mirroring the capacity addition pursued by rivals, documents reviewed by Mint show. Jet has ordered 50 MAX planes with CFM-Leap-1B engines and configuration of 168 seats for delivery starting 2018 and ending in 2021. This means Jet will induct 16 aircraft a year in those three years on average, mirroring the current expansion of rival IndiGo, which is operated by InterGlobe Aviation Pvt. Ltd. “To meet its aircraft requirements, Jet Airways has been negotiating with Boeing Co. for concluding an agreement for the purchase of aircraft and the protection of the available delivery positions,” chief commercial officer Sudheer Raghavan wrote in a 26 June letter to the aviation ministry. “Following discussions, the company has recently finalized agreement with Boeing Co. for the purchase of 50 Boeing 737-8 aircraft on a firm basis.” IndiGo, which flies 68 planes, had a 29.5% share of the domestic market in June, followed by Jet and subsidiary JetKonnect, which together had a combined share of 23.1% with 113 aircraft. SpiceJet Ltd has a 19.5% market share, Air India Ltd 18.9% and GoAir 8.9%. IndiGo will add 16 aircraft by December and start inducting an additional 12 from that month to retain its pole position. Both Jet Airways and Boeing have remained silent on this order, declining to confirm it in public. A deal for 50 737-800 MAX planes would be worth $5 billion at the list price of $100.5 million per aircraft. Airlines usually get deep discounts on sticker prices depending on how many aircraft are being bought, besides other factors. Boeing had booked 1,381 firm orders for the MAX through May before securing additional deals at the Paris Air Show. Goyal, who was present at the Paris Air Show held in June, may have signed the deal at this show, said a person with knowledge of the subject, who declined to be named. The secrecy could be linked to Etihad Airways PJSC buying a 24% stake in Jet, which has to go through several regulatory clearances, including at antitrust watchdog Competition Commission of India and markets regulator Securities and Exchange Board of India. The $900 million deal will bankroll Jet and potentially pay for these orders, this person said. Jet has recently sent the letter to the ministry potentially after the Foreign Investment Promotion Board cleared its deal with Etihad on 29 July. Raghavan, in his 26 June letter, said the airline plans to make pre-delivery payments for these aircraft soon and sought the aviation ministry’s approval as Jet had already “finalized with Boeing” a purchase agreement. Mint has seen a copy of the letter. Jet said it is prepared to meet the needs of these aircraft. It has 365 commanders and 364 first officers who are qualified to operate the B737, and 21 additional trainee captains. It also has 629 engineers to support this growth.

International:

• Sheryl Sandberg sells $91 million of Facebook stock: Sheryl Sandberg is leaning into a big new pile of money now that Wall Street's finally giving Facebook some love. The Facebook (FB) chief operating officer and author of the much buzzed-about "Lean In" sold nearly 2.4 million shares of the social network's stock last week at an average price of $38 per share, according to a regulatory filing. It amounts to about $91 million. Sandberg is using a pre-arranged trading plan, which means she has no control over the specific timing of her sales. Such plans are a common way for top executives to cash in on a portion of their holdings while avoiding accusations of insider trading. Sandberg has sold Facebook shares several times in the past year. Last year alone, she cashed out around $50 million in the months after Facebook went public in May. Her move this time came just a week after Facebook shares rose above $38 a share Wednesday for the first time since the social network went public in May 2012. The stock has clawed back from a low $17.55 in September. But Facebook shares soared after the company blew past earnings estimates last month. Shares have climbed nearly 50% in the last month.

• New Shopping District Blossoms in Paris: Paris is getting a new retail hub. The area between the department store district on Avenue Haussmann and the luxury stores on Rue Saint-Honoré is seeing a flurry of activity, including the planned opening this fall of a new office and shopping complex in a 184-year-old building that formerly housed the Printemps-owned Madelios men’s emporium. MGPA, a private-equity property-investment advisory firm, bought the building in 2009 for 210 million euros, or $280 million at current exchange, and has made “a substantial investment” in gutting and renovating the complex, according to Jean-Philippe Olgiati, country manager, France and Italy at the real estate firm. Located at 22 Boulevard de la Madeleine, across from the temple-style Madeleine church, the building, which has been renamed Le Madeleine, will house more than 186,000 square feet of offices and 126,000 square feet of retail space, including a two-story flagship C&A store, sports retailer Décathlon and perfumery chain Marionnaud. “For us, it was an extraordinary opportunity to be able to work in such a prestigious area, on a project with this kind of profile among media and fellow industry professionals,” Olgiati said during a visit to the construction site. “It is part of the evolution of this neighborhood. The whole stretch from here to Opera is about to undergo significant changes.” The real estate firm has tapped architects Laurent Goudchaux and Sébastien Segers to rethink the building and its facade, and industrial designer Ora-ïto to handle the interior design, including the double-height entrance lobby of the office complex, which will feature an interactive wall made of 44 plasma display panels.

• Perry Capital Joins the Penney's Fray: J.C. Penney Co. Inc.’s management may have lost the support of investors William Ackman and Richard Perry, but the retailer still has the financial support of factors and credit analysts — at least so far. The cash burn rate is what seems to be fueling the summer of discontent among board members and investors at Penney’s. The latest crisis began July 31 on rumblings that factoring firm CIT had stopped approving shipments for orders scheduled to be shipped in January. In reality, CIT had simply delayed final approval on orders pending additional information from vendors on certain orders. Factors who were in the office on Friday said they continued to support Penney’s. Credit sources said they are unaware of any firm that has stopped supporting the retailer at this time. That must be a glimmer of good news for Penney’s as its boardroom battle continued to rage Friday. Perry of Perry Capital Management joined the brawl as a new antagonist, siding with Ackman of Pershing Capital Management, which holds a 17.7 percent in Penney’s. Perry is also the owner of Barneys New York. In a regulatory filing Friday with the Securities and Exchange Commission, Perry disclosed he acquired a 7.3 percent stake in Penney’s, or 16 million shares, beginning on June 12 and ending on Aug. 1. The purchase prices ranged from a high of $18.02 to a low of $14.58, with the average in the $16.30 range.

• Bootlegger upgrades its online shopping experience for mobile: Canadian apparel retailer Bootlegger is rolling out a new mobile website and mobile application that will allow shoppers to access the company's full line of products using their smartphones and other devices. Both the mobile site and app include promotions and features that let users share products on Facebook and check nearby stores to see if specific inventory is available.

• Best Buy updates site with improved search, fulfillment options: Best Buy is working on a major revamp of its website, including improvements to the product search function and an option to fulfill online orders at stores when items are not in stock online. Improvements are already underway, but the larger changes could take six months or more, Best Buy said.