Midnight News Update –Jun 22st2017
SEBI has stepped to give a further boost to the NPA resolution initiative of the RBI. In its latest board meeting, SEBI made concessions to investors in distressed assets from making an open offer for the shareholdings acquired. Such relaxation is already available under the SDR schemes of banks but has now been explicitly extended to the purchase of distressed assets too. Additionally, all the approved cases under the Insolvency and Bankruptcy Code (IBC) will also get this benefit. This clarity is likely to give a boost to the entire concept of PCA and the idea of closing out the NPA issue via IBC.
Global investor, Farallon Capital, has denied that it is in talks to acquire a stake in Essar Steel. Essar Steel is one of the companies that is likely to be referred for winding up under the IBC. The Joint Lending Forum (JLF) is yet to decide on the appropriate mode of restructuring of the company. The account has already been classified as an NPA by a majority of the banks who had lent money to it. Essar Steel has dues in excess of Rs44,000 crore and it is one of the 12 critical accounts identified by the RBI. While Essar has claimed Farallon’s interest in the company, Farallon has denied any form of interest.
Oil stocks dragged the Nifty and Sensex down as the price of Brent Crude dipped below the $44/bbl mark. The oil market has been oversupplied by Libya and the US and that is taking oil prices down despite the supply cuts announced by the OPEC and Russia. With global oil stockpiles at an all-time high the pressure on oil prices is likely to stay on. However, sectors like FMCG and paints that benefit from low oil prices had a good day in the markets as the stocks touched new highs. Weak oil prices are not great news for oil extractors in India like ONGC and OIL, which still rely on high oil prices.
Morgan Stanley expects M&M to benefit substantially from rural demand. It especially expects a turnaround in the rural SUV segment and in the LCV segment, with focus on rural segment. The brokerage also expects the tractor business to turn around in the coming quarters. In the tractors business, Morgan Stanley expects higher rural incomes and higher replacement demand to drive the growth in the tractors business. Year 2017 is expected to be another year of normal monsoons and that is likely to result in a record Kharif production. With higher MSPs, rural incomes are likely to rise.
Global brokerage house, Credit Suisse, has raised serious doubts about the sustainability of the business model of RCOM, even if it reduces its overall debt by half. RCOM currently has an outstanding debt of Rs.50,000 crore of which it proposes to repay Rs.25,000 crore of debt once it is able to raise money from the sale of its towers business to Brookfield. In fact, RCOM has promised lenders to reduce its debt burden by half by September 2017. Credit Suisse is of the view that RCOM will have to sell more assets to bring down its debt burden further to a manageable level so that it can have a more comfortable debt service coverage ratio. The EBITDA of the company has been consistently falling and with the emerging competition from Reliance Jio, the EBITDA may trend further down. Hence the worry!
According to Macquarie, Tata Steel and JSW could be possible white knights for taking a stake in stressed steel companies. Both the companies, according to Macquarie, may be looking to expand their steel capacity footprint in India if the price is right and the economics are actually viable. This pertains to the defaulting companies like the Bhushan Group, Monnet Ispat group and the Essar group which have large steel capacities but are unable to effectively run it due to debt constraints. Both Tata and JSW are looking to make the best of the current favourable regulatory environment with respect to steel.
