News Round Up

IIML, Aditya Birla PE, Shapoorji Pallonji and US-based Darby Private Equity have shown interest in buying the fund.
Six Firms In Race For Axis PE Buy - Axis Bank, India’s third largest private sector lender, has received bids from six suitors for buying out its private equity arm called Axis Private Equity. IL&FS Investment Managers, Aditya Birla Private Equity, Shapoorji Pallonji group and US-based Darby Private Equity are among those that have shown interest in buying the fund. Earlier in February, the top managers of the company were looking to buy Axis Bank’s interest in Axis Private Equity, but some investors have opposed this move. Axis Private Equity had raised Rs 600 crore for its infrastructure fund in 2008. (ET)
NSR Likely To Hike Stake In INX Media - New Silk Route (NSR), a Mauritius-based private equity firm, is likely to increase its stake in INX Media Pvt Ltd to 80%, from 20% now. NSR is reportedly buying out stakes of some of the existing foreign and domestic investors to hike its stake in the company. NSR has agreed to infuse Rs 55 crore initially and will also pump in more money as per the business needs of the company. INX has been undergoing a financial restructuring since last 10-12 months, and sold its general entertainment channel 9X to Zee Tele Films last month. (FE)
SAIL Looks To Ink JVs With Posco, Others - Steel Authority of India Ltd (SAIL), the state-run steel manufacturer, is looking to form joint venture agreement with Korean giant Posco to build a 2 million tonne plant in Jharkhand. Besides Posco, SAIL is also in talks for multiple ventures with Tata Steel, Arcelor Mittal group and Japanese steel companies like Kobe for greenfield ventures. Reportedly, the Tatas could also set up a 2 million tonne steel unit with SAIL in Bokaro, while ArcelorMittal could set up a 3-4 million tonne in the eastern regions. (DNA)
Prudential May Sell AIG Stake To Tata Group - Prudential, the British insurance giant, may sell its stake in Tata AIG Life to its partner Tata Group. In March, Prudential had acquired AIG's Asia business for $35.5 billion, which included the 26% stake in Tata AIG. Prudential has to sell the AIG stake due to regulatory problems as it already owns 26% stake in ICICI Life Insurance that barred it from acquiring stake in another life insurance venture. Both the firms are reportedly in advanced stages of talks on the price at which the shares would be sold to the Indian conglomerate. (BS)
Shriram Transport To Infuse Rs 600Cr In New Arm - Shriram Transport Finance Company Ltd (STFC), one of India’s leading commercial vehicle finance company, is planning to infuse around Rs 600 crore capital in its proposed subsidiary, for conducting equipment finance business. The funds are expected to be infused in a month. The company has also forayed into gold loan by joining hands with one of the group’s subsidiary. (BS)

Investment in Shriram Transport Finance's NCD makes sense

Shriram Transport Finance is coming with yet another issue of non-convertible debentures (NCD). The issue opens on May 17, 2010, and closes on May 31, 2010. The investor can invest with a minimum sum of Rs 10,000. The company intends to raise Rs 250 crore through this issue with an option to retain over subscription of another Rs 250 crore. The company had tapped the NCD route to raise funds last year too.

The investment in company’s debt gets strength from the fact that it is one of the most successful non- banking financial companies (NBFC) in the country. It is primarily into financing of second-hand commercial vehicle. It is the only company in the organised market providing finance for such kind of customers, which other financial institutions are not comfortable dealing with due to an extremely difficult credit appraisal process.

The company can access the creditworthiness of its borrowers, as it is into this market for the past three decades. And its success is borne by the fact that net non-performing assets form less than 1% of its net advances as at the end of December 2009 quarter. This is one of the best asset qualities in NBFC space in India. And it gives comfort to the investors too.

The salient part of the issue is that this time the company intends to raise 80% of corpus from the retail investors. The scheme is structured in five options. In three of the options the investment is secured and in the remaining two, it is unsecured. While the secured options are rated as CARE AA+, the unsecured have been rated as CARE AA. A point to be noted is that even the unsecured option is rated adequately high by the credit rating agency. So the retail investors can be rest assured that the risk is minimal.

Within secured options, there are three alternatives, wherein an investor can invest for either 5 or 7 years depending upon the duration of investment he is comfortable with. The yield that a retail investor can earn ranges from 9.5% to 10.51% per annum. At a time, when most of the bank’s fixed deposits are not giving a better interest than 7.5% per annum, the company’s NCD issue seems to offer an attractive yield for the retail investors.

The yield is higher for unsecured options. The investor can invest either for six-and-a-half or for seven years. The yield a retail investor can make ranges from 10.75% to 11.25% per annum. The premium over fixed deposit rates is obviously more in case of unsecured options. What makes this issue attractive for retail investors is that the term of investment is quite high i.e. 5-7 years. We are in a phase, where interest rates are on an upward trajectory. At a time, when the general interest levels are already a bit high, this offer provides a premium over and above already high interest rates. So it makes a lot of sense for retail investor to park some funds at high rates for a long period of time.

Moreover, NCDs are going to be listed at National Stock Exchange (NSE). So an investor can redeem his investments should an urgent need for cash arises. Therefore a crucial aspect of investment i.e. liquidity is taken care of. In nutshell, an investment in Shriram Transport Finance’s NCD comes with twin advantages of high return and high liquidity. It makes sense for retail investors to park some hard-earned money here.

Insurance companies keen to grab client details of independent financial advisors

You trust them with your money, you have faith in them as they will guide you to the right financial path, you believe in them as they are completely independent and loyal to their clients. These of course are your independent financial advisors (IFAs). However, we now learn that some of these IFAs are being wooed by insurance companies to part with your contact details.

Companies like Reliance, HDFC Life Insurance, SBI Life Insurance, Aviva Life insurance, Birla Sun Life Insurance and other insurance majors are understood to be inducing IFAs with incentives to get contact details of clients. These are either meant to locate new customers for unit-linked insurance plans (ULIPs) or, simply to poach customers from other insurers.

An IFA gets paid for his co-operation in providing other details of a competitor’s clients to an insurance company. All your details, right from your telephone numbers to email IDs, even residential addresses, are also provided to the insurance company.
This is all part of a desperate attempt by insurance companies to keep selling ULIPs after a very public brawl between the Securities and Exchange Board of India (SEBI) and the Insurance Regulatory and Development Authority (IRDA) brought ULIPs sales down to a trickle. Thanks to that imbroglio, many ULIP customers are worried about their investments and are having second thoughts of continuing with premium payments for a product plagued by high default rates. Insurers are trying to reach out to existing and potential customers to dispel doubts and fears.

Secondly, insurance companies need to find other ways to bring in new customers. It is not clear whether they can launch new ULIP products before the courts pick the winner of the SEBI-IRDA fight; so they have to sell more to their existing customer base and need to interact with them directly. Or they have to incentivise IFAs to lure investors from other insurance companies.

“Insurance companies have often come to us to either sell their ULIPs or ask for our contact list in order to create a greater database to sell them directly to the clients,” said a certified financial planner who wished to remain anonymous. He calls this “a routine affair.”


These deals are obviously not done transparently. “There is no paper trail or a
black-and-white agreement,” says Neeraj Bahal, a certified financial planner (CFP), from Fasttrack Investments. Usually, an executive from an insurance company would meet an IFA and tell him about a chance for him to make some money by parting with his clients’ details for a fee. Depending on the deal, the IFA will either part with the data which the insurer uses to contact a potential customer; or, in some cases, the insurance executive will actually accompany the IFA to client meetings to sell a product. This enhances the credibility of the insurance product being sold.

We learn that many IFAs who sold mutual fund products are tempted by the kickbacks from insurance companies after their business was hit by SEBI's ban on entry loads. "Since mutual fund commissions were dwindling and distributors were affected, it created an opportunity for the sales of ULIPs,” said Harish Mohan, managing director, Time Financials (Chennai).
Some distributors have a different perspective. Jayant Vidwans, president of the Society of Financial Planners said, "Sharing of data with various organisations is not wrong.”

Not all IFAs are jumping in to grab the money. “If he is a serious advisor then he shouldn’t be selling his clients’ details. He shouldn’t do that as this is his bread and butter,” says Sumeet Vaid, founder and managing director, Freedom Financial Planners.

The function of an IFA is to provide the best possible financial option for his clients. However, when an IFA’s conduct is influenced by incentives, he becomes just like any other insurance agent and clients’ interests are compromised. 

UTI to reach out to investors using social media, mobiles

UTI Asset Management Company Ltd. (UTIAMC) is now going aggressive, with its plans to use social media and wireless technology to reach out to investors.

Mr. Jaideep Bhattacharya, Chief Marketing Officer of UTI Asset Management Company said in India about 63 % of the investments are done through community-based recommendations. This community can be friends, colleagues, relatives or social media like Orkut, Twitter, Linkedin, Facebook etc. Besides, the company is doing a lot of activities on Facebook and Twitter to educate the investors.

Mr. Bhattacharya said as people communicate a lot through social networking sites, therefore the company is focusing more on social media. The key objective out here is that wherever there is a discussion happening, the user can communicate or guide.

UTI Asset Management Company, who is well known for its innovative marketing initiatives, has now come out with initiatives such as - tying up with Mumbai's dabbawallas to distribute its NFO-Wealth Builder Fund-Series II, advertisements in Mumbai's local trains and tying-up with Meru cabs to communicate with investors in the past. Mr. Bhattacharya also said this year the company is eyeing on using wireless technology on mobile platforms, which would help the company in penetration of new markets, reducing cost of transactions and knowledge distribution. UTIAMC is a company incorporated under The Companies Act, 1956.

UTIAMC was registered by SEBI to act as the asset management company for UTI Mutual Fund vide its letter of January 14, 2003.

UTIAMC has also entered into a service agreement with the Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI) to provide them with back office support for business processes.

UTIAMC is also a registered Portfolio Manager under the SEBI (Portfolio Managers) Regulations, 1993 since February 3, 2004 for undertaking portfolio management services.

BSE steals a march over NSE in mutual fund volumes

Bitter exchange rivals Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) have been at each others’ throats for grabbing a larger share of the cash and derivatives segment in equity trading. It seems another battle is playing out on the newly-promoted mutual fund platforms of both exchanges.
However, the BSE appears to have hit the road running while its bigger rival is desperately trying to play catch-up. BSE has witnessed a sharp spike in trading volumes over the past few months. NSE, on the other hand, has remained mostly stagnant during this period. For the month of December 2009, when BSE StAR MF was launched, subscriptions touched Rs11.61 crore, with net inflows of around Rs4.43 crore. Comparatively, NSE’s MFSS platform registered a turnover of only Rs2.77 crore, with net inflows amounting to Rs1.85 crore.

Volumes on BSE StAR MF have surged by 82%, touching Rs21.19 crore by the end of April this year. On the other hand, volumes on NSE MFSS have witnessed a dip of 13%, touching Rs2.42 crore in April. While net inflows on BSE have jumped 268% to Rs16.30 crore during this period, NSE has barely managed an 18% rise amounting to Rs2.19 crore.

While the NSE was the first to jump into the fray when it launched its NEAT system based MF platform—Mutual Fund Service System (MFSS) on 30th November last year, the BSE followed closely on its heels by opening its Web-based trading platform—BSE StAR MF—on 4th December.

Why is it that NSE is so far behind its smaller competitor in this segment, when it enjoys an enviable market share in the equity derivatives segment?

Lack of adequate participation from brokers has probably hurt the NSE in its new venture. Some technical and operational issues have tipped the scales in favour of the BSE platform.

Chandrashekhar Layane, vice president, Fairwealth Financial Services, revealed that brokers prefer the BSE platform due to its comparative ease of use and flexibility. “Brokers favour the BSE platform because it is much more user friendly, not only in terms of technology but also in relation to operations.”

Deena Mehta, managing director, Asit C Mehta, believes that BSE enjoys a first-mover advantage in terms of providing a Web-based Internet platform. “When BSE launched its service, it started with a Web-based Internet platform straight away. Brokers could log in from anywhere and put in the trade. On the other hand, NSE started with its NEAT system. Hardly any broker now has NEAT terminals. We have shifted to Orion terminals. So having a direct connectivity with NSE was not workable.”

Ms Mehta also pointed out that BSE also offers a back-office solution, which facilitates billing and other tasks. “Otherwise, we would have to develop our own back-office software, which takes a lot of time and involves costs. Since BSE has already provided for technological compatibility, it is a lot more convenient for us,

Pensions, too, must be sold

NPS flounders for want of marketing.

The new pension system (NPS) for private citizens generated a return of 12% last fiscal year. This is higher than what the Employees’ Provident Fund has achieved, and higher than what fixed deposits of banks yield.

However, it is significantly lower than what could have been achieved in a year in which stock indices doubled. It transpires that the NPS started investing in equity only a little late in the year and secured a modest 26% returns on equity investments.

One has to wait for a full cycle to get a clear picture of how the NPS performs. However, the most striking feature of the NPS’ first year of performance after it opened up to voluntary contributions is that the corpus of such contributions amount to a meagre Rs 10 crore.

This is remarkable under-achievement for a well-structured, well-regulated scheme with an asset management charge as low as 0.0009%. Of course, there is a disincentive in the form of discriminatory tax treatment of the NPS, as compared to savings schemes like the Public Provident Fund (PPF).

Withdrawals from the NPS are taxed, while those from the PPF are tax-exempt. The promised harmonisation of the tax treatment of all long-term savings schemes is yet to materialise.

But the NPS is floundering essentially because of a faulty marketing model. A course-correction is imperative for the scheme to succeed. The government now contributes Rs 1,000 to the pension account of every new NPS subscriber.

It will cover the cost of starting an account with the central record-keeping agency and of carrying out transactions, and give a positive return on the very day of joining the NPS.

But this incentive to the subscriber does little to spread awareness of the scheme, to market the scheme. And the biggest problem with the NPS is that it is relatively unknown.

With a wafer-thin asset management fee, fund managers can hardly afford to market the scheme using their money. The pensions regulator PFRDA does some publicity for the scheme, but this is not enough.

The government must offer distributors, the so-called points of presence — banks that open NPS accounts for subscribers — and others, reasonable incentives for roping in subscribers.

MFs told to make complaints public

Securities and Exchange Board of India (Sebi) on Thursday said mutual fund houses need to put complete details about investor's complaints on public domain.
"It has been decided that mutual funds shall henceforth disclose on their websites, on the Amfi website as well as in their annual reports, details of investor complaints received by them from all sources," Sebi stated. The details of complaints will be signed off by the trustees of the mutual fund house. This is one of major steps to bring more transparency in the mutual fund industry, feel the experts.
For reporting of such complaints, Sebi has classified it into three types - delay/non payment of money, statement of accounts and service related (which will include wrong and unauthorised switching between schemes and loads charged).
Mirae Asset Mutual Fund CEO Arindham Ghosh said, "This is a welcome move by the market regulator which will increase transparency. I don't think it is a problem for the mutual fund industry as they are already disclosing investor's complaints regularly to the regulator". He adds that from now on though it will be on the public domain, all the fund houses have to upload their report for the year 2009-10 by June 2010 on their website as well as on the website of Association of Mutual Funds in India (Amfi). For the subsequent financial years, such reporting will be made within 2 months of the financial closure. In the last one year, Sebi has brought in handful of new regulations in the mutual fund industry, like ban on entry load, abolition of NOC for changing brokers and Application Supported by Blocked Amount (ASBA) facility.

Sebi arm to conduct distributor exams
From June 1, 2010, onwards, Sebi will effectively takeover the examination process for the mutual fund distributors. National Institute of Securities Markets (NISM), established by Sebi, would be conducting examination for the mutual fund distributor's certification. From the above date, test for AMFI Mutual Fund (Basic) Module and AMFI Mutual Fund (Advisors) Module will be discontinued.

News Round Up

The fund is planning to deploy $600-700 million over the next 12 months.
IIML To Raise Up To $350M For New Fund - Private equity firm IL&FS Investment Managers Ltd (IIML), the listed subsidiary of Infrastructure Leasing & Financial Services Ltd (IL&FS), is planning to raise $300-350 million for a new fund. The company plans to approach the market at the end of 2010 to raise the capital. IIML’s last growth private equity fund was of $225 million size. The fund is planning to deploy $600-700 million over the next 12 months. It is currently investing from its growth equity fund, TARA India Fund III, of which about 75% has been committed so far. (Mint)
Mahindra Retail To Raise PE - Mahindra Retail, the retail arm of tractor major Mahindra Group, is planning to raise private equity to fund the expansion of Mom & Me Stores. The company may look at raising up to Rs 443 crore in the second round of funding over the next quarter. The retailer, which currently runs 12 stores, plans to open 100 stores across India, apart from building IT infrastructure. The company plans to open 30 new stores this year. ICICI Venture has earlier invested in the company. (FC)
3i Sees High Asset Prices Hindering New Deals - Private equity firm 3i Group sees huge competition from its rival firms as the funds started to pursue new deals in recent months. It expects overhang of capital to be around for the next 18 months and the market will be pretty competitive. 3i has invested in two new portfolio companies over the course of the year. The group invested a total of 386 million pounds compared with 968 million the previous year as the industry's investments sunk to their lowest in a decade. (Reuters)
US Firm To Acquire Bangalore’s Mistral Solutions - Mistral Solutions, the Bangalore-based product realisation company in the embedded space, is understood to have been acquired by a US-based multinational which offers solutions to the global defence sector. The enterprise valuation of the deal is understood to be in the range of Rs 120 crore. Venture capital funds, Nexus India Ventures and JAFCO Asia, had invested around Rs 30 crore in Mistral Solutions in 2008. (BS)
GE Shipping Unit Files IPO Papers - Great Eastern Shipping Co, the shipping and offshore service provider, is planning to sell 22.05 million shares in unit, Greatship India Ltd, to raise funds via an initial public offering (IPO). The company has filed papers for approval with the market regulator Sebi for the IPO. Though the company did not divulge the amount of money it plans to raise, it mentioned a total expenditure of around Rs 325.65 crore in various projects. Kotak Investment Banking and Bank Of America-Merrill Lynch are the book running lead managers to the issue. (DNA)

Kotak May Acquire CitiFinancial India

Kotak Mahindra Bank Ltd may acquire CitiFinancial Consumer Finance India Ltd from Citibank NA.

Citi was rumoured to be exiting the personal loan business India in 2008, when the subprime crisis broke out in the US. CitiFinancial is a part of Citi Holdings.

Kotak is said to be conducting due diligence on CitiFinancial’s assets. CitiFinancial has about 118 branches and 2,000 employees in its network, out of which 800 are certified professionals authorized to sell insurance products. This will increase Kotak’s retail reach beyond it 249 branches. Kotak can use these branches as a distribution setup  

CitiFinancial has been reeling under bad loans and lossess since 2007. The losses largely accrued because of higher NPA and below par asset quality in unsecured personal loans. CitiFinancial reported a net loss of Rs.729 crore in fiscal 2009 against a profit of Rs.19 crore in the previous year. The management has also cut the branch network from 450 to around 118, retrenched at least 400.
Citi has infused $200 mn (Rs.900 crore) in the past two years to absorb the losses and cleaned up the balance sheet.

StanChart says India share sale to open May 25-28

 

 

Britain-based Standard Chartered's share sale in India will open from May 25 to 28, the bank said on Thursday. The sale of shares through Indian Depositary Receipts (IDRs) will be the country's first such issue. StanChart will issue 240 million IDRs, with every 10 IDRs representing one share of Standard Chartered Plc., according to its red herring prospectus.
The bank has hired UBS AG, Goldman Sachs, JM Financial Consultants, Bank of America-Merrill Lynch, Kotak (KOTAKBANK.NS : 777 +8.5) Mahindra Capital and SBI (SBIN.NS : 2310 -14.2) Capital Markets to manage the offering.
StanChart has appointed its STCI Capital Markets unit as a co-book running lead manager.