SEBI sticks to its guns, no P-Notes from sub-accounts and no P-Notes against derivatives. But SEBI also opens the front door wider, allows easier registration of sub-accounts.

While it is not going to allow sub-accounts to issue participatory note or allow participatory notes based on derivatives, it has relaxed some of the rules on who will be registered as FIIs.

The SEBI's final rules that will govern participatory notes is not majorly different from the draft rules it announced on Oct 17. As in the draft, the final rules ordain that sub-accounts of FIIs can't issue participatory notes hereafter. And they will have to wind down what they have issued in 18 months.

Also SEBI has maintained that PN’s issued with derivatives as underlying won't be permitted hereafter and those issued will have to be wound down in 18 months. As for full fledged FIIs, their status remains as in draft. They cannot issue PN’s more than 40% of their assets under custody. Those above this level can stay put, but can issue fresh notes only against cancelled ones. Those below the 40% limit can incrementally issue PN’s upto 5% of their assets till they hit 40%. The cut off date for assets under custody will be September 30.

Since sub-accounts have been banned from issuing PN’s, foreign investors were keen to know if they will be helped to register as full fledged FIIs through a more liberal definition. It has said that if funds don't have a one year track record to register, it will suffice if the fund manager has such a record.

While as a rule, only entities regulated in the home country will be allowed to register as FIIs in India entities like, charitable trusts, university funds, pension funds, endowments and foundations will be allowed to register even if unregulated
SEBI has also modified its broad based criteria to include those where one investor has more than 49% of the holding. So far, one investor could not have more than 10% of the holding. To ensure an easy transition into the new order, SEBI said that
Sub-accounts that have already applied for registration as FIIs after the Oct 16 proposals, will be treated as FIIs and allowed to do business, till SEBI finally registers them.

In a sweetener to foreign investors, Damodaran also said that henceforth, FIIs need to renew their register not every year but once in 3 years. However, what might prove to be the bugbear of foreign funds will be SEBI's clarion requirement that PN’s can be issued only to regulated entities and only to regulated can register in India.

SEBI Chairman Mr Damodaran said that SEBI has managed to get letters of intent from 90% of P-Note issuing sub-accounts within 24 hours. These sub-accounts are described as proprietary sub-accounts. If they are interested in converting to FIIs, will send a letter of intent indicating that they intend to bring in our application, treated as an FII on such an application being registered and I would expect that application to be complete in all respects should reach our office within a week from now. We have some people telling us that some applications often take as long as 3 months to put an application in, he said.

At the end of the 24-hour deadline, SEBI received letters of intent from 18 P-Note issuing entities. A top SEBI official said it was a significant number considering only 34 entities were involved in issuing P-Notes. But what's not clear is how many sub-accounts linked to these 18 entities are interested in converting to FIIs.

There are now 1,119 registered foreign institutional investors and 3,447 registered sub-accounts against 1,077 FIIs and 3,314 sub-accounts at the end of August.
SEBI's draft circular mentions 34 entities involved in P-Note issuance. This number has risen from 28 at the end of July.

Most P-Note investments are made through five entities, which together control 60% of investments.

	No. of FIIs	No. of sub-accounts
August end	1,077	3,314
As on 23rd Oct	1,119	3,447

With two more days to go, markets hope for more from SEBI clarity on hedge funds and cut off date for value of P-Note holding. SEBI Chairman also clarified that corporate sub accounts also have the benefit of conversion. But only propreitary accounts will get the benefit of issuing P-Notes during transition.

There was some relief for those who are already holding P-Notes well over 40% of their assets under custody. They can continue to retain that advantage, but they cannot bring fresh notes. The SEBI Chairman also pointed out that the regulator has been liberal in giving the FIIs enough time to unwind P-Notes based on derivatives.

SEBI informed that the responses are adequate to take the process forward. The regulator has been inviting FIIs to come via front door, but response is lukewarm. To change the scenario of FIIs investing in India in some other name is the motto of SEBI.

SEBI said that they have cleared 16 FII applications and there are some cases that are pending. The categories seeking registration are not cleared. But the board has cleared new categories which will be put it out shortly on the website. The board will not to be held accountable if application is not complete. The unregistered PNs were told by the SEBI to wind up 3.5 years ago. It informed that the sub account which are only for P-Note work will not be allowed. But proprietary SUC accounts will be allowed to register. Single group can register multiple entities in India.

SEBI further said that the regulator will look at AUC over a period of time. The entities who want to get registered with SEBI seeking time, have to notify SEBI. There is a sense of urgency and hence, SEBI want to see an orderly closure. SEBI Chief said that there is no need to wait for Oct 25 to apply for FII registration.

SEBI has already received large number of responses from both India and abroad. And the regulator seeks to expedite the process of registration. Earlier, SEBI have never had too many FII applications pending. The FII applications received before Oct 17 are cleared now.

SEBI further said that sub-accounts for FIIs will not be carved out but proprietary sub-accounts will be allowed to register. SEBI feels that it is necessary to differentiate between corporate and FII sub accounts and will mull to carry on positions from P-Note status to FII. Sub accounts, that want to register, must intimate within next 24 hours. Time limit for the registration is of 18 months, which deems as 'liberal', said SEBI. Further, SEBI is not asking the entities with over 40% exposure to cut down their levels.

SEBI also said that multiple registrations from single FII group is likely. PNs will stay till all entities register directly. SEBI said that P-Note exercise is not aimed at curbing the capital inflows. There is no upper limit on sub accounts registering as FII and there are 3000+ registered entities exist already. An expert panel is working on PNs based on derivatives. FII Registration fee is of US ,000 and Sub Account fee is of US $ 2000. And the regulator will be flexible with certain criteria including 1 year track record if need be.

Citigroup, Goldman Sachs, ML, Kotak are among the FIIs who attended the meeting. SEBI has received large response from both India and abroad and these responses are adequate to take the process forward. The scenario of FIIs investing in India in some other name will change. Citibank has expressed desire to register as FII and has been cleared. The regulator has suggested that FIIs should not renew or issue P-Notes with derivatives as underlying instruments.

It further said that P-Notes issued against derivatives need to be wind up in next 18 months. Incremental rate of 5% for issue of P-Notes for FIIs with <40%>40% on redemption/cancellation. P-Notes based on derivatives account for 30% of total P-Notes. Currently, there are 34 FII/Sub-accounts issue P-Notes vs 14 in March '04. On this issue, Finance Minister P Chidambaram said that the attempt is to control leveraging flexibility of P-Notes. The value of P-Notes over last 3 years is of Rs 3.5 lakh crore Vs Rs 31,875 crore.

IFCI is in trouble, one may ask what's new, its been that way for the lat 9 years. But 9 years hence, ever wondered what could be one thing that could derail the entire restructuring process at IFCI - And with short of shooting myself in the leg I would say the very speculative activity that has taken the IFCI stock price beyond Rs 100. I say it because the more I speak to people around the process the more I sense the apprehension at the way the IFCI stock has been moving.

The art of strategic turnaround hinges on what price is the asset been acquired for. Will the investor turnaround the institution in 3 years and will it generate returns during this period. As I look at it IFCI for long has been the most speculative stock in the last 6 months at least. For a stock trading below par and rising 10 times to over Rs 100 in a year is as alarming as it can be. And this despite the fact that it still does not have the capital adequacy to lend, the profit it declares is out of asset sales and NPA recoveries, and above all which will continue for another two years atleast.

A few months back we had a leading daily naming Barclays as suitable bidder and valuing IFCI at Rs 85. But as we stand at a point of shortlisting (Only 10 turned up) investors who submitted EOI, NO one yet has bothered to ask where is Barclays including the financial daily that named Barclays. The stock has moved from a 52 week low of Rs 9.30 to a 52 week high of over Rs 105 per share. Has anyone asked Barclays why it didn't bid and if it did not intend to bid on what basis it valued IFCI at Rs 85 per share.

That said, let me get to the most disturbing fact - Derailment of the IFCI restructuring. IFCI has been posting profits for the last 2 quarters, and this has been one thing that has turned on the fancy of the investor. But even more disturbing is the fact that this fancy has turned into an irrational speculation on the stock that may eventually see all investors withdrawing from the process.

Two key details that one should realise is that, First, the strategic investor if and when he puts in a bid will have to follow the SEBI preferential issue guidelines. And secondly they will have to follow the Open Offer guidelines as per SEBI norms. In both cases, the guidelines are clear, the acquirer will have to pay a price that will be an average of 6 month price or 15 day average price or whichever is higher. The more the speculative action pushes the price up, the more expensive IFCI becomes and so the further the investor is likely to move away from the restructuring.

In August this year, a 26% stake & open offer would have cost the investor little over $ 367 m, today at current market price of over Rs 100 the cost of the acquisition would be over $ 734 m. As if the street buzz is anything to go by, by the time the financial bids are invited in November this year, the cost would touch close to a $ 1 bn. BUT is the investor willing to shell out nearly a billion is a question that I am told even the IFCI management is afraid to answer. Leave alone the people who are closely associated with the process.

One might argue that the market forces determine the intrinsic value of a company, but one should realise that market can't force a strategic investor to pay a price that it may think is irrational and influenced by undue speculation in the market. At nearly $ 1.5 billion market cap it is even more important for the company and its administrator to decide whether they indeed want to safeguard the process which is under threat from speculators that I feel don't understand even the basics of the company.

The board of IFCI is all set to announce the shortlisted investors that would go ahead into the due diligence process. But as these investors enter the second phase the challenge is yet to come and the skeletons yet to come out. The first would be the interest subsidy that the government gives to IFCI for servicing debt that have been rolled over for over 10 years at interest rates as low the Japanese interest rates.

The second would be the debt that IFCI owes to the govt, IDBI, PSBs. These debt have been converted into FCDs convertible at par as and when IFCI has positive networth.

The third biggest challenge would be the decision on grant that govt has decided to provide IFCI for few years and which has been part of the Budget. Would the government continue with the grant if a new management takes over the financial institution.

Fourth, it is almost certain now that in all probability a foreign investor or consortium will be the front runner for IFCI, considering it hardly had any domestic public sector bank envisaging interest. But will the foreign investor take the plunge considering that the cost of acquisition is likely to increase by nearly 2x by the time the preferential issue is made in Jan 2008. To make it simple to understand for

This is the first time perhaps that a financial institution undergoing a restructuring will pose challenge not only to the management, the stock exchanges, the regulator, the advisors and potential investors. Can IFCI trading be suspended pending completion of the process & preferential allotment. If that happens what happens to shareholders some may ask, if the current price is overvalued this price is atleast assured to the shareholders, if IFCI is undervalued the investor's bid will reflect the same. In both the case, the open offer will be available to the minority shareholders. But that is only if the intention is ensure a safe completion of process. The chances of which are diminishing with every rise in price. Who will take that decision?

Whatever, the market may value IFCI at, it is highly likely that there might be a mismatch in the making. And the fear is just getting worse for the people associated with the restructuring process.

The last three days has seen almost all asset classes touching new all-time highs.

In the commodity markets, crude touched a new intraday high of USD 83.90 a barrel today on the New York Mercantile Exchange. However, it could not sustain those gains and closed down 0.38 cents to USD 81.40 per barrel.

Gold too hit a 28-year high on Thursday. Spot gold prices surged to USD 730.25 an once, its highest since January 1980 when it hit a record high of USD 850.

In the forex market, the rupee touched a new nine-year high yesterday. It had appreciated to 39.90 as against Thursday's close of 40.20. The Indian unit has appreciated beyond USD 40 for the first time since May 1998.

The indices too joined the party today. Both the Sensex and Nifty hit their respective all-time highs in today’s intraday trades, the Nifty touched a high of 4,855.70 while the Sensex hit 16,616.84.

It was yet another spectacular day for the Reliance group companies in terms of wealth creation, be it the Mukesh Ambani camp or Anil Dhirubhai Ambani Group (ADAG) companies. All the group companies have been doing extremely well over the past one-month and have added enormous wealth to their investors.

Mukesh Ambani's Group Reliance Petroleum and Anil Ambani’s RNRL were the star performer in today's trade, they have surged up 11% and 35% respectively.

Today the total market cap for Mukesh Ambani's Group stands at Rs 401,800 crore and ADAG stands at Rs 190,700 crore. If we consider the combined market cap then they have added Rs 26238 crore in a single day compared with yesterday's close.

* % change versus previous close, # Rs crore

According to Dipan Mehta, Member of BSE & NSE, “ Reliance Group has captured the market’s imagination. There is a lot of froth in the market especially in these stocks so lot of day traders, speculators also trying to ride this particular trend and therefore we are seeing Reliance Group companies doing exceedingly well.”

He further added, “Over the last two-three months if it is one group, which has outperformed the market, it is the Reliance Group; both brothers and therefore any stock, which is in the group market seems to have taken fancy to that and we are seeing blowout volumes and stock price movements.”

“Not all of it is related to any perceptible change in the fundamentals of these companies, but it’s just that the PEs are getting rerated upwards and there is a lot of excitement and expectations from these group companies.”

In percentage terms in last one month Reliance Industrial Infrastructure has gained by 115%, RNRL 66%, Reliance Capital 47% and Reliance Petroleum 43%.

TATA Sons — the holding company of the Tata group — has decided to make an open offer to buy 29.29% of the retail shareholding in group company, Tata Investment Corporation, in a Rs 600-crore deal. The move will consolidate the group’s shareholding in all companies in its fold.

The unlisted Tata Sons, which currently owns about 40.44% in Tata Investment, has made the offer to buy from retail shareholders who own 39.39% of Tata Investments. The move won’t result in delisting, Tata Investment said in a statement to BSE.

The principal business of Tata Investment — one of the first publicly-held investment companies on BSE — includes investing in shares, debentures, securities in India and overseas and in underwriting new businesses and in taking over the management and control of companies. In its statement to BSE, Tata Investment said that Tata Sons will make the offer at Rs 600 per share, which is a premium of 33.33% over Friday’s closing price of Rs 450.10.

“This price is also well in excess of the minimum price of Rs 439 per share, computed on the basis of the relevant Sebi pricing formula,” the statement added. It didn’t give further details and also didn’t specify the offer schedule.

Tata Sons didn’t make any statement while senior executives of the holding company weren’t available for comment. Group sources, however, said the move is in line with the Tatas intention to shore up holding in group companies “as a second line of defence.” While about 60.6% of its shareholding is held by Tata Sons and group companies, Tata Investment also owns varying stakes in other group companies.

The Tatas had recently raised their stake in Tata Steel, Tata Tea and other key group companies to ward off hostile threats. After the LN Mittal-controlled Mittal Steel acquired Arcelor in a hostile, high-profile acquisition drama last year, the Tatas responded by hiking their stake in Tata Steel, now fifth-largest in the global pecking order. Other Indian family-run business enterprises, including the Aditya Birla group, also followed suit, with promoters increasing their stakes in group companies.

Tata Investment has been vital in the group’s move to consolidate its financial activities. Just recently, the group formed Tata Capital, a new financial services that will operate in large growing segments within the finance sector that also includes businesses that Tata Finance earlier operated in.

14-SEP-2007,INDOWIND,Indowind Energy Limited,AMBIT SECURITIES BROKING PVT. LTD.,BUY,687648,92.86,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASHOK DEORAH,BUY,375105,92.92,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASHWIN STOCK & INVST.P.LTD.,BUY,456210,87.01,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASIT C MEHTA INVESTMENT INTERRMEDIATES LTD,BUY,927661,87.83,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASSET ALLIANCE SECURITIES PVT. LTD.,BUY,772337,78.11,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,AUM SECURITIES PRIVATE LTD,BUY,574638,90.27,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,B K SHAH AND CO,BUY,286865,90.59,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,CITIGROUP GLOBAL MARKETS MAURITIUS PRIVATE LIMITED.,BUY,500000,90.00,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,DINDAYAL BIYANI STOCK BROKERS LTD.,BUY,681000,91.24,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,GHALLA BHANSALI STOCK BROKERS PVT. LTD.,BUY,811918,100.16,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,HARBUX SINGH SIDHU,BUY,716890,90.92,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,JIGNESH TALAKSHI GALA (HUF),BUY,472495,103.06,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,KAUSHIK SHAH SHARES & SECURITIES PVT LTD,BUY,747731,101.32,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,KHANDWALA INTEGRATED FINANCIAL SERVICES P LTD,BUY,506963,83.07,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,M/S JIYA INVESTMENTS,BUY,278868,106.24,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,MAHENDRA P RATHOD,BUY,373316,67.51,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,MANIPUT INVESTMENTS PVT LTD,BUY,316690,97.49,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,NAMAN SECURITIES & FINANCE PVT LTD,BUY,249608,100.06,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,P R B SECURITIES PRIVATE LTD,BUY,943516,87.50,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,PRASHANT JAYANTILAL PATEL,BUY,1661803,97.04,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,RAMAKANT R CHOKHANI,BUY,449912,81.30,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,SANDEEP SATISHKUMAR SABOO,BUY,1178856,73.93,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,TEJPAL S SHAH,BUY,434957,89.32,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,TRANSGLOBAL SECURITIES LTD.,BUY,704776,98.41,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,VAIBHAV DOSHI,BUY,372862,85.37,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,VIJAY Y NANVARE,BUY,487909,82.57,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,AMBIT SECURITIES BROKING PVT. LTD.,SELL,687648,93.04,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASHOK DEORAH,SELL,375105,93.98,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASHWIN STOCK & INVST.P.LTD.,SELL,456210,89.22,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASIT C MEHTA INVESTMENT INTERRMEDIATES LTD,SELL,927661,88.16,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,ASSET ALLIANCE SECURITIES PVT. LTD.,SELL,772337,78.57,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,AUM SECURITIES PRIVATE LTD,SELL,574638,92.58,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,B K SHAH AND CO,SELL,286865,91.96,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,DINDAYAL BIYANI STOCK BROKERS LTD.,SELL,680990,91.86,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,GHALLA BHANSALI STOCK BROKERS PVT. LTD.,SELL,811917,100.63,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,HARBUX SINGH SIDHU,SELL,716890,91.35,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,JIGNESH TALAKSHI GALA (HUF),SELL,472495,103.30,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,KAUSHIK SHAH SHARES & SECURITIES PVT LTD,SELL,746731,101.64,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,KHANDWALA INTEGRATED FINANCIAL SERVICES P LTD,SELL,480713,81.82,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,M/S JIYA INVESTMENTS,SELL,278868,106.45,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,MAHENDRA P RATHOD,SELL,373316,73.56,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,MANIPUT INVESTMENTS PVT LTD,SELL,316690,97.55,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,NAMAN SECURITIES & FINANCE PVT LTD,SELL,238606,100.97,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,P R B SECURITIES PRIVATE LTD,SELL,943516,88.78,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,PRASHANT JAYANTILAL PATEL,SELL,1661803,97.90,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,RAMAKANT R CHOKHANI,SELL,449912,81.65,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,SANDEEP SATISHKUMAR SABOO,SELL,1159351,81.75,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,TEJPAL S SHAH,SELL,434957,90.26,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,TRANSGLOBAL SECURITIES LTD.,SELL,699776,99.02,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,VAIBHAV DOSHI,SELL,372862,85.25,-
14-SEP-2007,INDOWIND,Indowind Energy Limited,VIJAY Y NANVARE,SELL,469385,89.05,-

Nagreeka Exports stocks is buziing on the demerger news of its investment arm. The stock has touched an intra day high of Rs 41.75 and an intra day low of Rs 37.10. Currently, the share is quoting at Rs 40.70, up Rs 5.90, or 16.95%. It is trading with volumes of 70,550 shares, compared to its 5-day average of 8,698 shares, an increase of 711.12%. Yesterday the share closed up 1.02% or Rs 0.35 at Rs 34.80

The Kolkata-based yarn and knitted fabrics manufacturer Nagreeka Exports has completed demerger of its investment arm Nagreeka Capital & Infrastructure (NCIL). The demerged entity will have a paid-up capital of Rs 6.31 crore, split into 1.26 crore shares of Rs 5 each, according to a ET report.

The demerged company, with an investment portfolio of about Rs 52 crore, is likely to list on both the premier exchanges on Friday, according to senior company officials. Promoters would hold about 55% stake in the new company. “Nagreeka Exports’ investment portfolio (wherein, the funds have been invested in companies like Sterlite Industries and Sterlite Optical) has been demerged into a new company. As part of this, every shareholder of Nagreeka Exports will get a matching number of shares in the new company with a face value of Rs 5 (at a share swap ratio of 1:1).

Consequent to this, the face value of the shares of Nagreeka Exports will reduce from Rs 10 to Rs 5,” Nagreeka Exports managing director S Patwari said. NCIL as a fund has 90% of its investment in the Sterlite group. The fund holds close to about 43.3 lakh shares in Sterlite Industries and about 3.42 lakh in Sterlite Opticals. The company, in the longer run, would be like an infrastructure fund listed on the bourses. The new company’s investment portfolio, in today’s market value, would be around Rs 300 crore.

As part of restructuring, we have already transferred the corpus to the new company, Mr Patwari added.

NCIL, as a fund, would be investing in real estate and infrastructure projects, private equity funds, select stocks and REIT funds. According to company sources, the company is also scouting for opportunities in the power generation sector. “We will increase the fund size in due course. We have not worked out details as to how we would raise capital,” Mr Patwari said.

The interest in Industrial Finance Corp of India (IFCI) is hotting up. The buzz that the world’s largest private equity firm, Blackstone, is likely to join the fray is getting louder, reports the ET. Among others who are likely to put in bids for a 26% stake in the country’s oldest development financial institution are Standard Chartered Bank, Citigroup, Reliance Capital, Barclays and Swiss investment firm UBS Securities.

It is understood that domestic institutions such as Punjab National Bank, LIC and IDBI are also likely to submit expression of interest (EoI). The last date for submitting EoIs for the sale closes on September 14.

Both officials at Blackstone and IFCI had no comment. Blackstone India CEO Akhil Gupta said in an email, “We don’t respond to market rumours.” However, sources indicated that Blackstone could come in as a standalone strategic investor or as the lead partner in a consortium. “As the sole strategic investor, they can have a greater role in IFCI keeping the long term in view,” a source said.

The Delhi-based financial institution invited EoIs from domestic and foreign investors to buy a 26% stake on August 14, 2007. It will follow a two-stage process for the selection of a strategic investor by end of January 2008. The names of the shortlisted candidates from among those responding to the EoI will be announced by September 25 this year.

Following this, the company would issues requests for proposal (RFP) on October 1. Only at the RFP stage will a distinction be made between various PE investors, an official at IFCI said. IFCI will not prefer asset strippers and pure short term investors looking to maximise investments.

There will also be a lock-in period of three years for the entity or the consortium which would be selected as the new shareholder. IFCI has said that the bidder should be in the business of financial services.

The IFCI scrip has been gained around 10% per month since January 2007 when it was around Rs 12. It closed at Rs 74.25 on Monday on the NSE. Analysts say that the scrip has shown resilience over the past few months, despite turmoil in the markets.

“The volume traded in the market is disproportionate to the market capitalisation of IFCI,” a source said. This trend has largely held, barring a few months, he added. IFCI’s value derives from its financial investments, such as in the NSE, standard assets worth Rs 6,500 crore and improved NPA recoveries.

According to qualification parameters for making bids, a potential suitor needs to have an asset book of Rs 10,000 crore or a net worth of more than Rs 4,000 crore or a fund with average assets of more than Rs 10,000 crore. In case of a consortium, investors need to have a lead investor and hold at least 26% stake. The total number of members in a consortium should not be not more than four.

The IFCI board recently decided to appoint investment bankers for due diligence advisers.

Foreign investors including Morgan Stanley (2.5%), Goldman Sachs (3.3%), Citigroup (2.5%) and Deutsche Securities (4.61%) already have equity interest in IFCI. As many as 11 financial institutions, domestic as well as overseas, together held 34.8% stake in the company as on March 31, which includes 8.4% stake owned by LIC and 5.01% by IDBI. The accumulated losses for IFCI were Rs 4,772 crore and have come down but still stand at Rs 800 crore as on March 31, 2007.

In what can be estimated to be a move to rein in the rising rupee, the government had announced restrictions on external commercial borrowings, or ECBs yesterday. The move would reduce the flow of dollars into the country.

The new norms state that a company can raise up to USD 20 million dollars through the ECB route after getting RBI’s approval. But ECBs over USD 20 million can only be spent overseas. This move comes after India has seen unprecedented dollar inflows through ECBs. In the period from April-July, India has received ECBs to the tune of USD 9 billion.

The government currently is also worried that it may not meet its USD 160 billion export target - that's because the rising rupee has hit exports.

To counter this, Commerce Minister Kamal Nath had said yesterday that the government is thinking of another package of incentives for exporters. This is in addition to the Rs 1,400 crore package announced in July. But this new package will cater to the needs of sectors that were not included in the July package.

But, who will be significantly affected by the government’s current incentives to curb the impact of the rising rupee?

NEW ECB NORMS

Who’s to benefit?

- BPO/ITES cos likely to benefit

- Export oriented cos expected to benefit

- Major beneficiaries are tech, banking cos


Who will be negatively impacted?

- Negative for oil marketing cos

- Mfg sector with capex to be impacted

- Hardcore manufacturing sector

- Capital Goods manufacturers

The BPO/ITES companies are likely to benefit. Export oriented companies are also expected to benefit. Since most of the IT companies have hedged at Rs. 40.50 per dollar, they may not feel any immediate impact of the Government’s move.

On the other hand, Oil marketing companies will feel the brunt of the ECB norms, and will be hit negatively. The manufacturing sector with capex, will also be similarly impacted. This is because the Rupee depreciation may lead to companies booking losses.

Bala Swaminathan, Head, Corporate Banking, Standard Chartered Bank, said, “There is ample liquidity currently available in this system but every single flow is important. My own sense of what RBI has done, is robbing Peter to pay Paul. The over-obsession with foreign exchange rates and therefore, to protect one sector of the economy which is technology companies and the BPO, will now mean that a whole other sector of the economy, which is the hardcore manufacturing sector, might end up paying higher interest cost."

He points out another ECB stipulation that he feels, is a serious issue.

"They have also stipulated is money must be used to import equipment from overseas. So capital expenditure necessarily must happen overseas. That has got to have an effect on capital goods manufacturers in the country as well. So there are larger ramifications of this ECB secular beyond just interest cos,” he added.

A lot of Sensex companies will be positively impacted by the new ECB norms. The positively impacted Sensex companies account for 67% of the weightage. There are tech, pharma and banking companies; some of them that are impacted like Reliance etc. So we have seen a huge rally around the Nifty and Sensex on the back of the the ECB norms.

Reliance has a weightage of about 13%, backed by Infosys, at about 9.3%, ICICI Bank at around 9.5% - all have been positively impacted.

Some other companies that have been negatively affected have been manufacturing and telecom companies; the weightage is around 10-15% in the Sensex, in addition to Oil marketing companies. But in terms of percentage, their impact on the Sensex is not much.

ECB CURBS IMPACT

Positive Weightage (Sensex)

RIL 12.9%

Infosys 9.3%

ICICI Bank 9.44%

L&T 6.4%

ITC 4.5%

SBI 4%

Satyam 3%

TCS 2.2%


ECB CURBS IMPACT

Negative Weightage (Sensex)

Bharti 5.9%

R Comm 3.9%

Tata Steel 2.8%

NTPC 2.1%

Tata Motors 1.55%