Midnight News Update – Oct 31st 2017
The merger of IDFC and the Shriram Group that was announced with a lot of fanfare has finally been called off after both the companies failed to agree on a property valuation formula. IDFC investors had sought a premium of Rs.40/share which Shriram shareholders did not agree to. The merger was considered to be made in heaven as it would give IDFC the required reach and the Shriram group the required balance sheet size. Apparently, the bigger challenges of getting RBI approval to permit Ajay Piramal take a stake in a bank may have also played a part in putting off the merger idea for now.
Bharti Infratel plans to acquire Indus Towers and when the deal is completed it is likely to emerge as the largest towers player. Bharti Infratel is a wholly owned subsidiary of Bharti Airtel and it already has a 42% stake in Indus Towers. This will also entail the involvement of Idea Cellular and Vodafone as they also have a stake in Indus Towers. Indus Towers is expected to have an enterprise valuation of $11 billion and hence Bharti Infratel may have to shell out nearly $5 billion for the deal. Once the deal is completed, Bharti Infratel will be 2.5 times its nearest rivals viz. BSNL and ATC.
In what could be a major restructuring, RCOM has called upon the banks to convert its debt into a 51% stake in the equity of the company. That way, RCOM will become owned by the banks under the debt restructuring that is currently under way. This will be part of a zero-write off plan for the banks. The company is likely to defray nearly Rs. 17,000 crore worth of debt through monetization of its assets and if another Rs.7000 crore of debt is converted into 51% equity then RCOM will only be left with Rs.6000 crore of debt on its books. RCOM will then remain purely a B2B business model.
Tata Steel posted a consolidated net profit of Rs.1017 crore in the second quarter ended September 2017. This is against a loss of Rs.49 crore in the corresponding period last year. Tata Steel is currently in the second phase of its expansion in Kalinga Nagar in Odisha and it is also trying to buy out major steel companies that are currently stressed. The steel industry in India has substantially benefited from rising steel prices on the back of recovery in the Chinese economy. The favourable government policy in terms of protecting the local steel manufacturers has also helped Tata Steel spruce up its financials.
Brent crude oil crossed the $60/bbl mark and touched a 27 month high as Russia also decided to support the OPEC on continuing its supply cuts for another 9 months till the end of December 2018. The announcement is expected when the OPEC officially meets in the month of November. Brent Crude had dipped below $45/bbl in June this year on concerns that the deal may fall through. However, it was extended till March 2018 and now looks all set to go to December 2018 with additional cuts if warranted. A lot will still depend on how the US reacts to this move. The US continues to be the key swing producer of oil as its shale producers have the capacity to expand and contract production at will. Also the US breakeven level is much below that of the OPEC or even Russia.
Donald Trump plans to announce the name of the new Fed chairperson by November 02nd. The name of Jerome Powell is now emerging as the most likely name for the Fed chair. While Kevin Warsh and Janet Yellen are still in the shortlist, the president is apparently leaning towards Powell. Trump will be leaving for Asia on Friday and this announcement is likely to precede his trip. The world markets are waiting with bated breath as the philosophy of the new chair will largely determine the future direction of the Fed monetary policy. A dovish approach will be preferred the world over.
