In the aftermath of the PNB $2 billion fiasco, the RBI has barred the issue of letters of undertaking (LOU) for trade credit purposes. It may be recollected that LOUs were at the centre of the PNB scam wherein the bank had been defrauded to the tune of $2 billion by fake LOUs issued over SWIFT to Nirav Modi and his group companies. The RBI also barred the issue of letters of comfort but said that letters of credit (L/C) and bank guarantees can be issued subject to strict criteria. RBI is apprehensive that the actual fraud in use of fake LOUs in trade credit may be much larger in reality.
After Reliance Nippon AMC, the next AMC to go public may be HDFC Mutual Fund. The IPO may be structured as an offer-for-sale wherein the parent HDFC will be looking to offload a part of its stake in the AMC through the IPO. The committee of directors has already given the approval of an IPO to the tune of 8.59 million shares of face value Rs.5 each as part of the issue. However, HDFC will continue to maintain over 50% stake in the AMC even after the dilution. Many of the large financial sponsors are now looking to monetize their group assets partially to raise funds for their core needs.
The government confirmed that the Finance ministry had received requests for the withdrawal of the tax on long term capital gains (LTCG) which was imposed by the government in the 2018 Union Budget. Post April 01st 2018, any long term capital gains in the hands of the individual will be taxed at 10% if the annual LTCG exceeded Rs.1 lakh. The markets corrected sharply after that announcement as it was felt that the announcement could lead to aggressive selling in the stock markets. One of the arguments was that having a 15% STCG tax and a 10% LTCG tax without indexation was patently unfair.
ICICI Securities may be downgrading its valuations by around 35-40% to a more realistic level ahead of its IPO that is slated shortly. ICICI Bank will be selling nearly 22% of its stake in the broking arm of ICICI and the stake is likely to be valued at around Rs.17,000 crore compared to Rs.25,000 crore that the company had envisaged originally. ICICI Bank is expected to raise around Rs.4,000 crore from this sale. It may be recollected that ICICI has already partially monetized its stake in the life insurance and the general insurance venture. The success of the issue will depend on market conditions.
While the last word on the sale of Binani Cements is not yet out, markets are surely surprised at the aggressive bid made by Ultratech, part of the Aditya Birla group. Ultratech had bid Rs.7,200 crore compared to the bid of Rs.6350 crore put out jointly by Dalmia Cements and the Piramal Group. It is not clear whether the revised bid will be approved but creditors will look at the best option available to cover all costs. The worry in analyst circles has been that the bid may be a tad aggressive if you compare it with the bid made for Jaypee. But it also needs to be remembered that the Binani acquisition comes with the limestone mines which can be a major asset in their Brownfield expansion and that needs to be factored in. Cement companies are expanding capacity aggressively via inorganic route.
The initial indications coming from the US economy is that the GDP growth may be picking up without any major impact on inflation. That will keep the rate hawks happy at just 3 rate hikes. Not surprisingly, even as the dollar weakened against hard currencies, the equity markets in the US bounced higher. There was uncertainty in the US after Trump fired Secretary of State, Rex Tillerson, over differences over Iran. The big worry for the markets was whether the Fed would be inclined towards 4 rate hikes instead of 3 rate hikes. With inflation under check, that may not be required.
