Suzlon Energy up 15% on fund raising & debt trimming plans

Shares of  Suzlon Energy jumped 15 percent intraday on Monday as its acquisition and fund raising plans gather steam. The company is likely to take over US based Edison Mission, reports CNBC-TV18 quoting sources. Edison Mission Energy (EME) is an independent power producer based in California.

It is also learnt that Suzlon Energy is looking at options to unlock RePower value and may list the German subsidiary on the London Stock Exchange (LSE). Final call on RePower is likely to be taken before end of FY15.

The management, meanwhile, is planning to reduce debt by Rs 1500 crore by end of FY15. As a measure, it may sell 14-15 assets, including two overseas assets. It is also looking to sell four-five component manufacturing plants in Tamil Nadu and Gujarat

It may look at monetizing Suzlon’s India operations, maintenance and services OMS business, which was carved out into a separate wholly owned subsidiary Suzlon Global Services Limited (erstwhile known as SISL Green Infra).

OMS is a relatively low risk business than the main turbine business, with annuity like cash flow profile

At 09:17 hrs, the stock was quoting at Rs 11.08, up Rs 1.19, or 12.03 percent on the stock.

PwC is sued for $1 billion over MF Global collapse

The administrator of MF Global Holdings Ltd’s bankruptcy plan on Friday sued the auditor PricewaterhouseCoopers for at least USD 1 billion over its advice on a USD 6.3 billion European sovereign debt investment that helped fuel the brokerage’s rapid demise.

According to a complaint filed in US District Court in Manhattan, PwC committed professional malpractice by offering “flatly erroneous” advice concerning, and approval of, the off-balance-sheet accounting treatment for the debt by MF Global and its then-chief executive, Jon Corzine.

The complaint said PwC knew that the investment would add significant risk to MF Global’s already weak finances. It said MF Global would not have taken on the exposure, which allowed it to book immediate revenue, had it received sound advice.

“PwC’s professional malpractice and negligence were a direct and proximate cause of massive damages the company suffered,” the complaint said.

Caroline Nolan, a PwC spokeswoman, said that the accounting treatment that is the subject of the complaint has been examined by trustees, regulators and a congressional committee.

“None of them has found that the accounting for those transactions was incorrect. PwC is disappointed that this meritless claim has been brought.

” Corzine invested USD 6.3 billion in debt of countries such as Belgium, Ireland, Italy, Portugal and Spain to advance his strategy of transforming his futures and commodities brokerage into a global investment bank.

But as Europe’s economy weakened, MF Global struggled with worries about the debt, margin calls, credit rating downgrades, and news that money from customer accounts was used to cover liquidity shortfalls, ending in its October 31, 2011 bankruptcy.

The complaint said it is the first seeking to hold PwC liable for malpractice over its accounting advice for the sovereign debt. It does not address how customer money was used. Creditors would share in recoveries if the lawsuit succeeds.

Corzine is a former governor and US senator from New Jersey, and former co-chairman of Goldman Sachs. He is not a defendant in the PwC case but faces other lawsuits over MF Global from investors, customers and US regulators.

DIRECTOR “DID NOT LIKE” ACCOUNTING TREATMENT

MF Global’s plan administrator is a three-member board to which Louis Freeh, the former Federal Bureau of Investigation director and original court-appointed MF Global trustee, assigned his rights to pursue claims on creditors’ behalf.

Corzine had made the sovereign debt investments through so-called repurchase-to-maturity trades, in which he agreed to sell securities and repurchase them later at higher prices, enabling MF Global to obtain short-term funding while boosting leverage.

According to Freeh’s April 2013 report on MF Global’s collapse, the company’s board became increasingly concerned in 2011 over the portfolio’s growing size.

He said at least one director, David Schamis, “did not like” the “accounting-driven structure,” which let MF Global recognize upfront profit while satisfying rating agencies, and was concerned about MF Global’s ability to unwind the trades.

Schamis, a former executive at private equity firm JC Flowers & Co, is a founding partner of Atlas Merchant Capital in New York. He could not immediately be reached for comment.

Former MF Global customers had also sued PwC over the company’s collapse, but a federal judge last month dismissed those claims.

The case is MF Global Holdings Ltd as Plan Administrator v. PricewaterhouseCoopers LLP, US District Court, Southern District of New York, No. 14-02197.

RBI eases primary dealers’ exposure norms to QCCP

To promote centralised clearing of OTC derivative products, the Reserve Bank today eased stand-alone primary dealers’ exposure ceiling to a qualified central counter party by keeping the limit outside the existing 25 percent of net-owned funds.

The new norms would be effective Tuesday next, the central bank said in a notification. Clearing exposure to a qualified central counter party will be kept outside of the exposure ceiling of 25 percent of its NOF applicable to a single counter party, the RBI said. The ceilings on single or group exposure limit would not be applicable where principal and interest are fully guaranteed by the government, it added.

The guidelines has also asked PDs (primary dealers) to include credit risk exposures to all other categories of non-government securities, including investments in MFs, commercial papers, certificate of deposits, positions in OTC derivatives not settled through QCCP, to compute the extent of credit exposure.

However, other exposures to qualified central counter party (QCCPs), like investments in the capital of a CCP, will continue to be within the existing exposure ceiling of 25 percent of NOF to a single borrower or counter-party. At present, there are four CCPs – Clearing Corporation of India, National Securities Clearing Corporation, Indian Clearing Corporation, and MCX-SX Clearing Corporation.

While the CCIL has been granted the status of a QCCP by RBI, the other three CCPs have been granted the status of QCCP by Sebi. The RBI also reviewed the existing guidelines on capital charge for credit risk of standalone PD’s exposure to interest rate derivative contracts, rep/reverse rep transactions and central counter parties have been reviewed.

The RBI said repo-style transactions shall attract capital charge for counter-party credit risk, in addition to the credit risk and market risk.

State Bank of India up 4%, Goldman Sachs upgrades to buy

Shares of  State Bank of India  (SBI) continued to see buying interest, rising nearly 4 percent intraday on Thursday after brokerage house Goldman Sachs upgraded the PSU bank to buy from neutral rating. The stock rallied 7.8 percent in four consecutive sessions since March 24.

The brokerage house also revised target price to Rs 2,080 from Rs 1,440 apiece, citing the bank will benefit from economic recovery and lower slippages.

Goldman Sachs expects slippage ratio of the bank to decline to 3.2 percent in FY16 and stress loans to fall from 9.1 percent in Q3FY14 to 8.4 percent by FY16.

The India’s largest lender has been carrying the burden of dud assets worth Rs 67,799 crore and street believes that it may, for the first time in more than 100 years, offload around Rs 5,000 crore of such assets to Asset Reconstruction Companies (ARCs). The process is likely to complete before the end of the month.

Soundara Kumar, Deputy MD-Stressed Assets Management, SBI on March 19 told CNBC-TV18 that the bank could see a pick-up in restructuring in the fourth quarter . She informed the group has concluded sales of 1-2 bad loans to ARCs. There are around 14 ARCs functioning today and many had approached SBI to buy its bad loans.

The bank’s net profit was down 34.2 percent year-on-year to Rs 2,234.34 crore in the quarter ended December 2013, dented by higher provisions and expenses. Its gross non-performing assets (NPAs) were increased to 5.73 percent in Q3FY14 as against 5.64 percent in Q2FY14 and 5.3 percent in Q3FY13 while net NPAs rose to 3.24 percent from Rs 2.91 percent and Rs 2.59 percent during the same period.

Meanwhile, Goldman Sachs also upgraded PNB and Bank of Baroda, which gained 2.5-3 percent.

Suzlon needs leadership from outside promoter family: IiAS

Suzlon’s  financial performance has been under serious pressure and it is time for the company to look for change in leadership outside promoter family, believes Amit Tandon, MD, Institutional Investor Advisory Services (IiAS).

Mumbai-based proxy advisory firm IIAS gives voting recommendations to shareholders on company resolutions. Recently, it asked the company’s shareholders to vote against the re-appointment of the chairman Tulsi Tanti as the managing director after he sought a 50 percent pay hike despite the company going through debt restructuring.

Suzlon has a standalone debt of over Rs 8,000 crore and a consolidated debt of over Rs 12,000-13,000 crore.  In an interview to CNBC-TV18, Tandon said that the company should look at making a host of strategic changes.

Tanti and the promoter group still own 39 percent stake in the company, so Suzlon should look at diversifying ownership, he added.

Banks like PNB ,  IOB and Central Bank have big exposure to company. “IiAs hasn’t spoke to bankers on Suzlon yet,” Tandon said.

Anuj: Quite interesting point you raised that for a company which is going through debt restructuring the CEO wants to take a 50 percent pay hike, is that your biggest problem?

A: Our problem is clearly not in terms of the salary. Given the size of the company, he can surely take a little bit more without really impacting the bottomline, which is actually not there. Over the last three years, may be even five years, it has kind of being floundering; the performance is all over the place.

Its sales in March 2013, was pretty much along the lines of what it was two years earlier. Therefore, we are saying that Tulsi Tanti had come on the board of the company as the CEO of the company about three years back, we were saying that clearly as a strategy that is something which has not worked.

May be it is time for the company to look outside the controlling family and find some people who might understand the business better and be able to correct the situation. Once you have got new management, there is fresh thinking, all assumptions are revisited and may be this is what the company needs at this stage.

Ekta: Considering that the fundamental problems in Suzlon are so deep at this point in time including the interest cost and the debt burden that it is suffering from, who do you think would be a liable buyer for Suzlon or would be able to take over the management and do you think that would be a remedy for at least the fundamental issues or the fundamental business problems that Suzlon suffers from will possibly be then resolved?

A: There is muddled thinking at this moment. The company already has Rs 8000 crore of debt on a standalone basis and about Rs 13000-15000 crore on a consolidated basis. There are changes in regulations and some of it is in anticipation, but they are taking shareholder approval to increase their borrowing limits from 10,000 crore to Rs 20,000 crore. That is a tall order particularly given that at a consolidated level you say you are regularizing something you could take approval for 30 percent of the existing borrowings and not 100 percent of this limit. So, there is clearly an issue.

As far as other questions are concerned, we are not saying bring in A or B, the point we are making at this stage is, it is time for the shareholders to engage with the management of the company and ask the question -  look are you in a position to provide the best leadership and strategic direction to the company or it is time for you to now bring in someone else.

Very often just because I own the company it does not mean that I am in the best position to run the business. You need to diverse ownership and management of the company. The other thing what we have said is that the controlling family needs to realize they have been diluting down, but they still own about close to 40 percent of the equity. May be their long-term interests are served by bringing in someone who would fix the problem rather than let it fester for a few more years.

Anuj: The counter to that would be that it was the same family which got the company public, saw best of the times, it was a Nifty stock at one point in time. Sure enough it went through a bad period but a lot of people argue that may be it is going through a bit of revival phase which the numbers may not represent right now and a management change at this point in time might be counter productive?

A: Run horses for courses. May be the kind of leadership you had was required in this stage when the company was much smaller, it was growing. When the problems are different you bring in a different set of people to address it. We are dealing with very different problems those in startup stage, those when the economy is growing.

The power sector itself is undergoing some change so you are talking about a period when there was a huge amount of shortage in the power sector to now when things are far more evenly poised. Therefore, may be there is a different management which is needed at this stage. Banks themselves have a huge exposure to the company and it is quite interesting if you look at the ownership pattern of the company it is not the typical names which you see, it is pretty much Punjab National Bank, Central Bank, Indian overseas Bank. These are people who would I expect that getting the share price to perform is only one aspect to the whole thing, they have got a lot of money which is stuck in the company so they need to take a very hard look at what is happening to the company.

Suzlon Energy stock price

On March 27, 2014, Suzlon Energy closed at Rs 9.62, down Rs 0.19, or 1.94 percent. The 52-week high of the share was Rs 15.10 and the 52-week low was Rs 5.72.

The latest book value of the company is Rs 9.72 per share. At current value, the price-to-book value of the company was 0.99.

RBI to keep rates on hold in April as inflation eases: Poll

The Reserve Bank of India (RBI) is expected to keep its key interest rate steady at 8 percent on April 1 as inflation has eased, according to all 53 economists polled by Reuters.

In his fight to lower stubbornly high inflation, RBI chief Raghuram Rajan has hiked interest rates thrice since he took over in September, surprising markets on two of those occasions.

But the RBI is expected to hold fire next week after February wholesale price inflation slowed to below the central bank’s commonly perceived 5 percent comfort level for the first time in 9 months and retail price rises eased to a 25-month low.

The poll showed the RBI will keep the repo rate unchanged at 8.0 percent until at least October while the cash reserve ratio won’t be changed from 4.0 percent until July 2015 at the earliest – the end of the forecast horizon.

“A status quo looks likely, given that the RBI is under no immediate pressure to take action given the dip in both CPI and WPI,” said Vishnu Varathan, an economist at Mizuho Bank.

Wholesale prices rose a slower than expected 4.68 percent in February as food and fuel prices moderated while consumer price inflation eased for third straight month to a 25-month low of 8.10 percent.

The poll suggested the RBI’s next move will be a cut although a few economists chose not to provide forecasts for the rest of the year, saying they were unable to make predictions before the results of national elections due to start in two weeks.

Investors’ confidence has been revived in recent weeks on the likelihood the elections will usher in a new government led by the opposition Bharatiya Janata Party, which widely perceived to be more business-friendly.

Indeed, the rupee has been touching seven-month highs while the stock market has set successive records, with foreign investors particularly heavy buyers of shares.

Banking shares have led the gains on optimism about a looming recovery in the economy, which is expected to have grown at its slowest pace in a decade, and bets the RBI would keep interest rates on hold for now.

Despite the market euphoria in the run-up to the elections, analysts cautioned that inflation, high borrowing rates, weak industrial output and subdued demand are among the main economic risk facing the next government.

“We need a government which continues on the path of fiscal consolidation and if it (the new government) does that then there will be space for monetary policy easing,” said Ashutosh Datar, an economist at IIFL.

Mining production cap at 20 MTPA in Goa acceptable: FIMI

ASupreme Court appointed panel has recommended restricting mining capacity in Goa to 20 million tonne per year though the existing capacity of the sector is 45 million tonne per annum. But RK Sharma, Secretary General, Federation of Indian Mineral Industries says the mining sector will have no choice but to follow the order if directed by the Supreme Court.

He adds that 20 MTPA production from Goa is acceptable to the mining industry. He says the industry will need permission to export as the Goan iron ore can only be exported and not used domestically since it is low grade. The iron ore produced in Goa has always been 100 percent exported, he says.

In Karnataka, since the ban on mining two years ago, mines have taken time to resume due to lease expiry. The production has fallen to sub-20 million tonne in the state. However, Sharma says the onus for recommending and pushing for renewal of lease and clearance from the forest department lies with the state government.

Latha: The Supreme Court (SC) panel has recommended that bringing down the mining capacity to 20 million tonnes in Goa would be appropriate, your views how does it compare with the previous mining that was done in Goa before the ban?

A: When SC has said then we have no other view except to obey the SC advise and their directions. We will limit to 20 million tonnes as directed. But the sector’s capacity is to produce 45 million tonnes and actually this is the recommendation of the survey team – macro environmental team – appointed by SC. They said 20 million tonnes would be the correct quantity in terms of the macro environment impact on Goa so it is okay for us.

Latha: Do you believe the SC whether it will accept the panel’s recommendations or do you see the SC even further tweaking the panel’s recommendations?

A: It is a six member panel, one from the ministry environment and forest, one from the state government and four are independent panelists. So this panel has taken a view of the central government, state government as well as the independent panelists. So this is the broad consensus and it is acceptable to us.

Sonia: So if mining is resumed would you like to see the approval for exports as well keeping in mind it is in the state of Goa?

A: Yes, Goan iron ore can only be exported, it cannot be hugely used in the domestic industry because it is a low grade ore and it doesn’t have domestic demand because the lead to Karnataka will be more. What the Chinese and Japanese do, they blend the Goan iron ore with the Brazilian and Australian ore and they make a feed. So it is never been used in the domestic industry except very minor quantity. Goa has some pallet plant and there some quantity might have been used but it has always been exported 100 percent.

RBI Governor Rajan likely to hold rates on Tuesday: Icra

Ratings agency Icra  has said it expects Reserve Bank Governor Raghuram Rajan to hold the key rates on April 1, as inflation has shown considerable signs of cooling and is sniffing at the desired levels now.

“Consumer inflation eased to 8.1 percent in February, close to the target of 8 percent for the end of this calendar year as suggested by the Urjit Patel committee…Therefore, we expect a status quo on the policy rate in the upcoming policy review,” it said in a note.

Icra said the unseasonal rains and hailstorms witnessed early March, which may put pressure on the inflation front, will not immediately have a bearing on the monetary policy. Additionally, there are also fears about a poor monsoon which can have a negative impact on the inflation trajectory, the agency said.

“At this stage, these concerns may be premature to necessitate a monetary response and instead warrant action from various levels of government in terms of preparedness to deal with the eventuality of an unfavourable monsoon,” it said.

Rajan, who took charge last September, raised the rates at his first policy announcement, rightly foreseeing a pressure on the inflation front and increased it again–the third time since he took charge–in January when the market was expecting a pause.

It can be noted that even though the RBI has not formally adopted inflation targeting, it has gone public on targeting consumer price inflation down to 8 percent by January 2015 and further down to 6 percent by January 2016, as per the recommendations of the Patel committee.

S&P cuts Brazil credit rating in blow to Rousseff

Standard & Poor’s cut Brazil’s sovereign debt rating closer to speculative territory on Monday in a blow to President Dilma Rousseff, whose efforts to stir the economy from a years-long slump have eroded the country’s finances.

Brazil had its long-term debt rating downgraded to BBB minus, the agency’s lowest investment-grade rating. S&P changed its outlook to stable from negative, meaning further downgrades are unlikely for now, which will come as a relief for both politicians in Brasilia and financial markets.

The move was widely expected but the timing surprised some investors.

As it came ahead of an October election in which Rousseff will seek a second term, the downgrade will expose her left-leaning government to further accusations that it has squandered the goodwill built during a long economic boom last decade.

Brazil has suffered from slow growth that averaged about 2 percent in recent years. Rousseff has tried to revive the economy with tax cuts and social spending but has been widely criticized for intervening too much and resorting to sometimes opaque accounting moves to meet budget targets.

“The downgrade reflects the combination of fiscal slippage, the prospect that fiscal execution will remain weak amid subdued growth in the coming years, a constrained ability to adjust policy ahead of the October presidential elections, and some weakening in Brazil’s external accounts,” S&P said.

The agency said that fiscal credibility had been “systematically weakened” following cuts in the government’s main budget target, and that loans by state-run banks had “undermined policy credibility and transparency.”

The Brazilian finance ministry rejected S&P’s arguments and said the downgrade contradicted Brazil’s solid economic fundamentals and healthy standing compared with other major economies.

“The Brazilian economy has low external vulnerability because it holds the fifth largest volume of international reserves among G20 nations,” it said in a statement.

The short-term effect of the move on financial markets was unclear, analysts said. Some investors could sell Brazilian assets because of policies forcing them to hold higher-quality stocks and bonds, while others may focus on the fact that S&P is unlikely to downgrade Brazil any further.

S&P’s move could prompt peers Moody’s Investors Service and Fitch Ratings to signal they may follow with a downgrade of their own.

“The natural tendency for markets tomorrow is the fear that there could be a chain reaction and other agencies may do the same,” said Ariovaldo Santos, manager of floating-rate assets at H.Commcor in Sao Paulo.

Moody’s and Fitch, which still rate Brazil two notches into investment-grade territory, have indicated, however, that they do not intend to downgrade Brazil before the elections.

Rousseff’s government has worked to restore its credibility on budget targets in recent months, but investors are worried that she will resort to more unorthodox accounting moves and raise spending as she seeks re-election.

The downgrade is unlikely to undermine Rousseff’s popularity among voters, but potential rivals blamed her management of the economy for Brazil’s fall from grace on financial markets.

Opposition leader Aécio Neves said the downgrade was due to the “manipulation” of fiscal accounts by her government, “exorbitant” public spending and “leniency” with inflation.

“Brazil is going through a sad moment of loss of confidence and ruined credibility,” he said in a statement.

China stimulus likely as Q1 economy seen weakest in 5 years

The odds of Beijing intervening to support the sluggish Chinese economy are narrowing following a slew of data that points to the weakest growth for China since the global financial crisis.

The economic pain may not be over, either, as some economists forecast that the slowdown could deepen further in the second quarter of the year.

It all adds up to increasing pressure on Beijing to provide the economy with a lift if the government wants to meet its full year growth target of around 7.5 percent.

“The government probably will have to provide some supporting measures,” said Wei Yao, China economist at Societe Generale in Hong Kong. “I think the slowdown is not over yet and our expectation is that the deceleration will continue into Q2,” she added.

A preliminary March factory survey released on Monday showed the manufacturing sector shrinking for the third straight month. It followed weaker-than-expected industrial output figures for January and February and a shocking fall in exports.

The factory data weighed on global markets as investors worried about the impact of a slowdown in China on the world economy, although Chinese shares listed in Hong Kong rallied on hopes for stimulus measures from Beijing.

As the first data covering March, the flash Markit/HSBC purchasing managers’ index (PMI) provided the first strong indication on the health of the economy this year. Data for January and February was distorted by the Lunar New Year holidays, economists say.

The PMI fell to an eight-month low of 48.1 in March from February’s final reading of 48.5. The index has been below 50 since January, indicating the sector is contracting.

Factory output and new orders both weakened but new export orders grew for the first time in four months, the survey showed, suggesting the slowdown has been driven primarily by weak domestic demand. “Usually, for the month of March, the PMI will rebound, because after Chinese New Year, there should be some activity coming back, but this PMI is disappointing,” said Societe Generale’s Yao.

She expects economic growth to ease to 7.2 percent in the first quarter of this year from the fourth quarter of 2013 and then to cool further in the second quarter to 6.9 percent.

Nomura expects growth to slow to 7.3 percent in the first quarter and then to 7.1 percent in the second, while Barclays sees it slipping from 7.3 percent to 7.2 percent.

The predictions would all represent the lowest growth since the first quarter of 2009 when it was 6.6 percent.

POLICY RESPONSE

Analysts said any policy measures to support the economy would be modest and certainly not on the scale of global financial crisis, when a torrent of lending led to an unprecedented buildup in debt.

“We think the government will roll out policies to support the economy,” said Sun Wencun, an economist at Citic Securities in Beijing.

Hongbin Qu, chief China economist at HSBC, suggested those measures could include “lowering entry barriers for private investment, targeted spending on subways, air-cleaning and public housing, and guiding lending rates lower.”

Economist Zhiwei Zhang of Nomura in Hong Kong reckoned the central bank would also play its part, by reducing banks’ compulsory reserves – currently 20 percent for big banks. This would free up funds for banks to lend.

Earlier this month, sources told Reuters the central bank was prepared to loosen monetary policy in order to keep the economy growing at 7.5 percent. Last year, China’s economy grew 7.7 percent, the same pace as in 2012.

Premier Li Keqiang last week said China would speed up investment and construction plans to ensure domestic demand expands at a stable rate – an indication authorities are considering practical measures to support the economy.

Not all analysts are convinced though that Beijing will step in to support the economy since there are no signs that unemployment is a problem.

“We don’t think the latest data warrants a policy response, just yet, at least,” said Julian Evans-Pritchard, Asia Economist at Capital Economics in Singapore.

EMPLOYMENT IS KEY

After three decades of double-digit growth, Beijing has said repeatedly it is willing to accept a lower rate of expansion while it tries to reduce the economy’s reliance on investment and exports. It wants consumption and services to play a bigger role.

Earlier this month in a major speech to parliament, Li said Beijing had the means to ensure growth would be “reasonable” this year, which he suggested would be around 7.5 percent.

Analysts said Beijing had the policy flexibility to ensure that the target is met but they suggested the real concern for policymakers would be if employment started to fall sharply.

Li says growth needs to be 7.2 percent to create 10 million new jobs in 2014. About 13 million new jobs were created last year.

There are few reliable indicators on China’s jobs market but the HSBC manufacturing PMI suggests employment has been shrinking for five straight months.

Finance Minister Lou Jiwei has said a healthy labour market was more important than reaching the government’s 2014 growth target of about 7.5 percent.

Something close to 7.5 percent “should be acceptable as long as there is no significant risk to the labour market,” said Sun Junwei, HSBC China economist in Beijing.

Yao of Societe Generale said the 2014 growth target of 7.5 percent is too ambitious – but failing to reach it would be positive.

“It is a good thing if they miss it,” said Yao, whose full-year growth forecast is 7.1 percent. “They can make the case that it is a necessary sacrifice.”