While the developments in the policy front was subdued with the announcement of general elections, corporate front saw a flurry of activity. Important among them were Airtel’s rights issue to raise Rs 32,000 crore, sale of natural gas pipeline by RIL and NCLT’s directive to Essar Steel promoters. On the international front, As anticipated, British Parliament rejected the government’s proposed deal for Brexit putting EU-UK separation under greater uncertainty. In an important move to enable faster transmission of policy rate, SBI has decided to link some of the deposits and loans with the existing repo rate. Savings deposit with over Rs 1 lakh would fetch interest rate equal to repo rate minus service charge and short term loans would attract interest rate equal to repo rate plus service charge. The move has far reaching implications since RBI has often lamented that banks do not pass on the benefits of lower rates to the customers. This leads to delay and incomplete transmission of policy rate to the economy. The move is well thought of as it links both loan and deposits to the policy rate. As a result, the decline in interest income from loans would be compensated by lower interest outgo on savings deposit, thus mitigating the risk to the bank. Since it comes from the bank which controls over 20% of total deposits of the economy, it should compel other banks to move in that direction and make transmission of policy rate quicker.

Airtel’s proposed rights issue for a substantial amount of Rs 32,000 crore has received boost with the major institutional shareholders committing to subscribe to the issue. The rights issue comes in the face of huge churn being witnessed in the industry with only three players remaining now. The fund infusion through subscription would provide liquidity to the company as the profits have fallen sharply. It may be noted that the promoters of Vodafone Idea also committed to infuse funds to the tune of about Rs 18,000 out of total fund raising plan of Rs 25,000 a few months back.

In another corporate move, Reliance Industries has agreed to sell its natural gas pipeline for a consideration of Rs 13,000 crore to asset management company, Brookfield. The move merits attention for two reasons. First, RIL’s gas transportation business has been going through a tough time with less than 10% capacity utilization due to sharp decline in gas production from RIL’s gas fields. (To keep the buyers’ risk within a limit, the sale agreement includes a minimum off-take guarantee clause). Secondly, the sale is probably necessitated because of huge investment made by RIL in the telecom business. It is one of the several businesses it is trying to sell-off to reduce the debt from its balance sheet.

The sale of Essar Steel through NCLT continues to go through twists and turns. While ArcelorMittal had emerged as the highest bidder with bid of about Rs 42,000 crore, the original promoter of Essar Steel entered the fray offering to pay the full amount of loan at about Rs 54,000 crore. Taking note of its offer, NCLAT asked it to clear the loan of all the group companies if it wants its bid to be considered, as directed by the Supreme Court in another judgment. Now, that would be tough task as total liabilities of the group could be more than Rs 1 lakh crore and it would be difficult for them to mobilize such an amount of funds.

As anticipated in the last week WRU, British Parliament rejected the deal proposed by the government for Brexit. Not surprisingly, members voting against the deal came down only marginally from 414 in the first vote to 391 in the second vote. In a series of subsequent voting, the members first voted on whether to leave EU without deal or not, then on whether to go for a second referendum and finally, on whether to seek an extension for withdrawal from EU. The Parliament finally voted to seek postponement of the deal by three months. The ball is now in EU which can, technically, reject UK’s request for postponement leading to another crisis. Even if it doesn’t reject the request, the chances of achieving any breakthrough even in three months appear not too bright and they may have to formally demarcate border between Northern Ireland and Republic of Ireland including check-posts.

(Image courtesy of ddpavumba at FreeDigitalPhotos.net)

Leave a Reply

Your email address will not be published. Required fields are marked *

error: Content is protected !!