Major events for the week are tabling of report on black money in the parliament, SEBI’s tightening of rules for mutual funds, continued trouble at DHFL, initiation of insolvency proceedings against Jet Airways and L&T set to acquire Mindtree.
The quantum of black money in the economy stood in the range of 7-120% of GDP during the year 2009-10 and 2010-11 as per the parliamentary report tabled in the parliament this week. Even at the lower end, this implies quantum of black money at close to Rs 5 lakh crore. The report is based on the estimates made by three agencies, NCAER, MIFM and NIPFP assigned the task in 2010. Even though the reports were submitted to the government in 2013-14, it was not made public due to sensitive nature of the findings and difficulty in making reliable estimates. While estimates vary from 10%-100% by NIPFP, it is 7-42% by NIFM and 20-120% by NCAER. (Complete report is still not made public). Other that domestic stock of black money, there is a substantial amount of black money stashed abroad which could be in the range of Rs 10-25 lakh crore as per the reports.
Financial market continues to witness tightening of regulations triggered by NBFCs’ default and its impact on mutual funds investors. In a set of measures, SEBI has reduced the limit of debt MF exposure to a particular sector from 25% to 20% and directed certain class of funds to invest 20% of its corpus in ‘liquid’ assets. This is largely targeted to restrict their exposure to NBFCs segment where MFs are facing significant value erosion. However, more important of the measure relates to shares pledging where amount of loan that can be given against pledging of shares has been reduced from 50% to 25% of the value of shares. The regulator has also stipulated that MFs need to disclose in case the percent of shares pledged crosses a certain limit. It has also barred ‘standstill agreement’, whereby MFs agree not to sell the pledged shares even if its value goes below the loan amount. It may be recalled that mutual funds entered into such an agreement with some of the groups such as Zee, ADAG a few months back.
Dewan Housing Finance (DHFL) continued to hog the limelight as a result of liquidity and solvency issues. The NBFCs, with total assets under management of Rs 1.26 lakh crore at the end of Dec’18, managed to pay only partially on another set of commercial papers which matured this week. The company has been hit badly with asset-liability mismatch and possibly, governance issues, has been selling-off its assets to pay back to its lenders. Among the assets sold are its subsidiaries in low cost housing and education loan segment. The promoter is also reported to be in talks to sell its entire stake in the company. (More on this, in another article).
L&T is all set to wrest control of Mindtree with its shareholding in the target company reaching almost 60% after the open offer. The last stumbling block was the resistance put up by the largest institutional investors which has now sold its stake. The ground for L&T’s entry was largely cleared after the independent directors’ committee, formed to decide on the L&T offer, had called L&T’s offer ‘fair and reasonable’ in its report. The report also triggered the exit of one of the founders from the board of the company. The battle began with sale of its 20% holding by earlier investor Mr VG Siddharth to L&T. The founders’, with about 13% stake in the company, had opposed the takeover tooth and nail. It would be interesting to see whether they also exit the company now or align their interest with the new promoter. To the credit of L&T, it chose to remain restrained at the peak of the battle and this should help it earn the goodwill of other stakeholders.
It is possibly the endgame for Jet Airways’, with the initiation of insolvency proceedings against it. The insolvency court has asked the resolution professional (RP) to find a bidder to take over the company failing which, its assets would be liquidated, or sold-off. The company could be having a liability of over Rs 10,000 crore to the lenders and other creditors. Insolvency plea was filed by the lenders, led by SBI, after exhausting all the options to find a buyer. Considering the extensive efforts already made by the lenders, it is difficult to hope that the court would be able to find a buyer. However, an interesting question here is, can Naresh Goyal bid for the airline?! While law bars a defaulting promoter from bidding for the company, Mr Goyal has already sold-off his stake and was not the promoter when the company was taken to insolvency court. (Read our earlier story on this – https://indiaeconomyandbusiness.com/jet-airways-can-it-avoid-a-crash-landing/)
(To check Weekly Round Up for earlier weeks, please click here)
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