News As We Read- 29th July'13

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Following made the Headlines:

India:

• Goyal a Winner as Etihad Flies Low to Take Off on Jet Plane: Abu Dhabi’s Etihad has made significant concessions in favour of its Indian partner, Naresh Goyal, in an effort to persuade the Indian authorities to clear its $600-million investment in Jet Airways. Etihad has agreed to vest Goyal, the founder chairman of Jet, with the right to deliver a “casting vote on any matter”, in addition to reducing its representation from three to two on the 12-member board of India’s largest private airline by revenues. ET reviewed the latest set of amendments to a slew of agreements between the two airlines that was sent to the Department of Industrial Policy and Promotion on July 25, ahead of a crucial meeting of the Foreign Investment Promotion Board (FIPB) on Monday. The deal is likely to be approved as most of the provisions in the original agreement with which the Indian authorities, notably capital market regulator Sebi, had problems have now been suitably diluted by the two airlines in their bid to secure approval. It is not clear, though, if FIPB will take a final decision on Monday as the revised agreements were circulated to various ministries and Sebi over the weekend. The changes in the revised agreements are substantive. The nominations committee, which in the original agreement had the “exclusive power” to recommend the appointment and sacking of independent board members, will now only exercise powers that are “recommendatory by nature”. In the old commercial cooperation agreement, or CCA, Etihad was empowered to ‘source’ suitable candidates for senior management positions within Jet, which the regulators feared gave Etihad an edge despite its minority stake. It has now been diluted to allow Etihad only to recommend suitable candidates.

• Limited Partners Want Unlimited Say in PE Funds: Five PE funds — IL&FS, ICICI Venture, CX Partners, Multiples Alternative and India Equity Partners — that are now trying to raise a combined $1.5-2 billion are locked in intense negotiations with limited partners over new terms that could redefine the performance-profit equation for PE fund managers, sources privy to the negotiations said. Limited partners, or LPs, are institutions that put down the money that PE funds go on to invest. According to top officials from two large and active LPs, and at least three PE funds currently raising money, limited partners are demanding that fees be charged only on actual amounts invested (drawdowns), and not on the total money raised. The PE fund managers — also known as general partners (GPs) — manage money in return for a fee and a percentage of the returns they generate with the fund (carry). The industry has lived with a broad 2:20 formula for two decades now — PE funds keep 2% of the corpus as annual fees and 20% of profits as ‘carry’. This is now up for re-negotiation. “LPs are negotiating with GPs on the fee. We may see the commitment-based fee payment structure change to a draw down based fee structure,” said Shagoofa Khan, senior vice-president and legal head, Kotak Investment Advisors. “Some LPs may also seek more GP skin in the game by asking them for higher sponsor commitments,” she added. LPs also want more control in areas such as composition of fund team, its investment focus, etc. The new and stringent demands from LPs are a direct fallout of the poor performance of PE funds in India. Funds have made only $15 billion to $20 billion in exits from the $60 billion invested so far; investment cycles are becoming longer and funds are generating a mere 14-15% internal rate of return (IRR) against promises of 25% made to LPs earlier. “New capital will only be committed on newer terms that adjust to new market reality,” said a global LP, which invested $1 billion in India. It is looking to commit another $200-250 million annually.

• Woodland Eyes 1,000-cr Turnover in FY14: Outdoor adventure apparel and footwear-maker Woodland is aiming to take its turnover to 1,000 crore this fiscal as it expands its retail presence in the country and adds more products to its portfolio. The company has about 400 stores of its own and its products are available across more than 4,000 multi-brand points-of-sales. “We open about 50-60 new stores every year and last year, we started 60 new outlets. Apart from bigger cities, people in smaller cities and towns also want to buy brands and we have a presence in these places too. We will continue to expand our presence across cities,” managing director Harkirat Singh said. This year, Woodland is looking at adding 60-70 stores, he added. While 70% of Woodland's revenue is currently from Tier I cities, the company is placing big bets on growth coming from Tier II and Tier III cities.

• SpiceJet to Launch Flights to Bangkok, Muscat and Macau: The Chennai-based budget carrier Spice-Jet will add three new international destinations including Macau to its network as part of the airline's overseas expansion plans, sources said. SpiceJet, which launched its international services in October 2010, currently operates across eight overseas airports, besides 47 domestic destinations. “We are all set to expand our overseas operations. As a part of this, we plan to launch flight services to Bangkok, Muscat and Macau,” airline sources said.

• Usha Sangwan to be First Woman MD at LIC: Usha Sangwan will be the first woman managing director at the Life Insurance Corporation of India in its near six decades of existence. She may well be a trendsetter at LIC, like Kishori Udeshi at the RBI, who started a glorious tradition of women rising to higher positions that for decades have been male bastions. The government is set to name 54-year-old Sangwan as a managing director at the country’s largest financial institution. She is currently executive director, communications. Along with Sushobhan Sarkar and SB Mainak, Sanwan will be one of the four MDs at LIC. VK Sharma, chief of LIC Housing Finance, has also been shortlisted for the MD’s post. Another senior female executive director, Sunita Sharma, is being considered for the top position at the housing finance subsidiary LIC Housing Finance once VK Sharma moves to the parent company. The country’s largest bank State Bank of India is also set to get Arundhati Bhattacharya as its first woman managing director in the history. Sources said that Sangwan has been shortlisted for the fourth MD post. Her appointment has to be cleared by the Central Vigilance Commission after which it will be send to finance minister, cabinet secretariat and finally to the Prime Minister’s Office. This will be the first time LIC will have four MDs, paving way for the first woman at the helm of the country’s largest financial institution. Sangwan joined LIC in 1981 as a direct recruit. She holds a master’s degree in Economics and a post-graduate diploma in human resource management. In LIC, she has worked in areas like housing finance, direct marketing and international operations. She has held positions such as divisional manager of Delhi, general manager (marketing) at LIC Housing Finance, and executive director of direct marketing and international operations. She led the way for LIC on social media by leveraging the internet and mobile. Today LIC has over 16 lakh connections on Facebook. LIC also sells policies online. 

• DLF in Talks with PEs for Aman Sale: India’s largest real estate firm DLF has ended its “exclusivity contract” to sell luxury hotel chain Aman Resorts to the original owner and founder Adrian Zecha and has begun talks with a clutch of private equity funds and international hotel operators, which includes Blackstone and Carlyle. DLF had announced the sale of its luxury hotel chain Aman Resorts for 1,650 crore to the Indonesian hotelier Zecha in December 2012 as part of the company’s non-core asset sale strategy to reduce its debt that had crossed the 23,000-crore mark. The original deadline of the deal was February 2013, which was extended to June 30. “But when the buyer was unable to close the deal, the company decided to begin talks with other players,” said a person close to the transaction, who did not wish to be named. Zecha has been unable to raise funds for the management buyout. While he has managed to raise equity by getting on board a few private equity backers, raising debt for the transaction is taking time. He is, however, still in the fray to buy Aman Resorts, said the person. 

• AI, SpiceJet offer some services for free: At a time when airlines are ‘unbundling’ services and charging for them, some are discovering that it pays not to put a price tag on everything. National carrier Air India is not in favour of charging for pre-selection of seats — something that all Indian carriers do — for domestic flights. Low cost carrier (LCC) SpiceJet continues to offer 20kg of free check-in baggage on domestic flights, whereas all others allow only 15 kg to domestic passengers. A senior AI official said, “The aviation regulator has directed that airlines can offer only up to 25% of seats for pre-booking. So at most, we are looking at raising Rs 5,000 from a flight through this route. It makes more sense to sell one more seat for this price than charge for pre-booking. We are unlikely to have seat selection charges for domestic flights and may only introduce the same for international ones.” Incidentally, AI was the first Indian carrier to reduce the 20kg of free check-in baggage weight allowed to domestic flyers to 15 kg when the government allowed unbundling of services. Interestingly, many Indian carriers were hoping that Malaysian low cost carrier AirAsia’s joint venture airline with the Tatas here may have a zero free check-in baggage policy (as it does globally) so that they can also do the same. But with AirAsia India also saying it will allow 15 kg of baggage, the Indian airlines’ hopes were dashed. LCC SpiceJet’s reason for continuing with 20kg is that surveys conducted by it showed domestic passengers, on an average, carry about 15kg and so there was no reason to tinker with the baggage policy.

International:

• Publicis to Merge with Omnicom to form Biggest Advertising Firm: Publicis Groupe and Omnicom Group agreed to merge in an all-stock deal to create the world’s largest advertising company, toppling market leader WPP. Shareholders of Paris-based Publicis and New York-based Omnicom will each hold about 50% of the new company, to be called Publicis Omnicom Groupe, the companies said on Sunday in a joint statement. Publicis chief executive officer Maurice Levy and Omnicom’s John Wren will become co-CEOs. The companies will have a combined market value of $35 billion and had $23 billion in 2012 revenue. The alliance will bring agencies including Omnicom’s BBDO Worldwide and Publicis’s Leo Burnett and Saatchi & Saatchi under one roof, extending their presence in every major market. The transaction will also give the owners more clout to negotiate for their clients better ad rates for media placements on television, the Internet and in print, at a time when the global advertising industry is showing signs of a recovery. The transaction is the biggest in the ad world. Last July, Japan’s Dentsu agreed to take over Aegis Group for about $4.9 billion. Publicis, Omnicom and London based WPP, led by Martin Sorrell, have grown through consolidation over decades as they vie with each other for accounts. Ad spending across the globe will probably rise 5.1% next year, according to Zenith-Optimedia, a researcher that’s part of Publicis. That would be an acceleration from 3.5% projected for 2013. Growth may reach 5.8% in 2015, ZenithOptimedia said.

• Boeing requests worldwide inspection of aircraft: Boeing has requested airlines to carry out inspections of a transmitter used to locate aircraft after a crash. A UK regulator had recommended the inspection after a fire broke out on a 787 Dreamliner jet parked at Heathrow airport earlier this month. It was traced to the upper rear part of the plane where the part - Emergency Locator Transmitter (ELT) - is fitted. Boeing said it had asked operators of 717, Next-Generation 737, 747-400, 767 and 777 airplanes to inspect aircraft. "We're taking this action following the UK Air Accidents Investigation Branch (AAIB) Special Bulletin, which recommended that airplane models with fixed Honeywell ELTs be inspected," Randy Tinseth, vice president marketing for Boeing Commercial Airplanes, said in a blog post. "The purpose of these inspections is to gather data to support potential rulemaking by regulators."

• Samsung overtakes Apple as 'most profitable phone firm': Samsung has become the most profitable mobile phone company in the world, overtaking Apple, a report says. Samsung's handset division had an estimated operating profit of $5.2bn (£3.4bn) in the second quarter of 2013, according to Strategy Analytics. Apple's iPhone operating profit was estimated at $4.6bn, with the iPhone range "underperforming". Total mobile phone shipments were 386 million in the April-to-June period, 4% up on the same time last year. In all, 27.7% of phones shipped were made by Samsung. Separately, Samsung, which is also the world's biggest TV maker, reported second-quarter profits of $7bn for the entire company. "This was the mobile phone industry's fastest growth rate since the second quarter of 2012," said Neil Shah, senior analyst at Strategy Analytics. "Strong demand for entry-level Android devices in Asia and Latin America drove much of the growth. Samsung continued to dominate, shipping 107 million mobile phones worldwide."

• Hudson's Bay Emerges as Saks' Most Likely Buyer: A deal for the sale of Saks Fifth Avenue is expected to come Monday morning, with Hudson's Bay Co. emerging as the winner, according to sources. Richard Baker, chairman of Hudson’s Bay, has reportedly informed close associates that he is confident he’s got the winning bid. Baker has long been interested in buying Saks to beef up his retail portfolio, which includes Lord & Taylor and Hudson’s Bay, and because Saks has valuable real estate and a luxury image. There was some earlier competition for Saks from a sovereign wealth fund from Qatar, which owns Harrods and Printemps, and Starwood Capital, but sources say Hudson's Bay has it locked in. The New York Post reported Saturday that Starwood dropped out of the bidding. 

• LVMH Raises Hermès Stake — Again: LVMH has again quietly snapped up shares in Hermès. LVMH Moët Hennessy Louis Vuitton’s first-half financial report shows that it raised its stake in the maker of Birkin bags and silk scarves to 23.1 percent as of June 30, 2013, from 22.6 percent as of Dec. 30, 2012. “It was an opportunistic move,” LVMH chief financial officer Jean-Jacques Guiony told analysts in a conference call on Friday. “It doesn’t say anything about our attitude in the future, so you cannot extrapolate that for the rest of the year.” The conglomerate said it had bought the shares on the market, though with a very limited free float, the purchase is likely to fuel speculation that some Hermès family members have been offloading their shares. It will also stoke the ongoing battle between the two luxury giants, embroiled in a series of court cases since LVMH surprised markets in October 2010 by announcing it had bought a 17.1 percent stake in Hermès in 2010 via cash-settled equity swaps that allowed it to circumvent regulations requiring firms to declare share purchases.