Source :Partha Sinha, TNN, Oct 22, 2010, 12.37am IST
The Indian capital market turned black into gold this week. The initial public offer of Coal India was set to be the largest in Indian history from the moment it opened on Monday, but even the biggest bulls in the ring were left stunned by the money it mined by the time it closed on Thursday: a mobilization of Rs 2.36 lakh crore, over 15 times the target of Rs 15,500 crore.
It's a mind-boggling testimony to the amount of money floating around in Indian markets, the hunger for good stocks, and the sheer euphoria about the India story ^ also reflected in the fact that the sensex too closed up 388 points at 20,261 on Thursday. The success of Coal India also sets an impressive benchmark for biggies like SAIL, Hindustan Copper, Manganese Ore and Power Grid which are lined up to tap the capital markets in coming months.
It can be a little hard to get one's head around all the zeroes in a figure like Rs 2.36 lakh crore (or $53 billion). So here's some perspective. The amount of money that flowed into the offering by the `black diamond' in just four days is more than last year's GDP of about 140 countries. Nearer home, it is more than the GDP of Sri Lanka ($42 billion) and four times that of Nepal ($12.5 billion), according to data on the World Bank's website. It is also almost 10 times India's health budget of Rs 25,154 crore for 2010-11, nearly five times our education budget of Rs 49,904 crore and almost one-fourth the size of the Union budget itself.
Here's another fascinating comparison: Foreign institutional investors (FIIs) have pumped in a record Rs 1.08 lakh crore into Indian stocks so far this year. For the Coal India IPO alone, they have put in bids worth Rs 1.20 lakh crore. ``This is one of the best PSUs (CIL is the world's largest coal producer and accounts for 80% of India's coal production) and was offered at a very good valuation,'' explained Dharmesh Mehta, MD, institutional equities, Enam Securities. ``The huge oversubscription also reflects the easy liquidity situation abroad,'' he added. With interest rates at extremely low levels in most developed countries, FIIs can easily borrow there and pump in money into attractive stocks in emerging markets, which is exactly what happened in this case.
The offer also witnessed a rise in the average retail application size to Rs 70,000-75,000 from Rs 40,000-45,000 in other recent offerings. "The strong retail participation in the IPO might actually make the case stronger for Sebi to increase the maximum retail application size to the proposed Rs 2 lakh,'' said Sanjay Sharma, MD & head, equity capital markets, Deutsche Bank, one of the merchant bankers to the offering.
A panel of ministers headed by finance minister Pranab Mukherjee is expected to meet on Sunday to decide the issue price of the offering in the coal behemoth. While the issue price was in the band of Rs 225-245, the strong demand should allow the government to price it towards the highest point, a banker close to the issue was quoted as saying by news agencies. The market consensus is that the scrip will list at around Rs 300. If it does so, Coal India's market cap will be about Rs 1.89 lakh crore, which would make it India's fifth largest company by market cap, behind only RIL (Rs 3.53 lakh crore), ONGC (Rs 2.90 lakh cr), SBI (Rs 2.03 lakh cr) and TCS (Rs 1.93 lakh cr) based on closing prices on Thursday.
Demand was strongest from qualified institutional buyers, which includes FIIs, mutual funds and insurance firms, who bid for 24.7 times the shares on offer to them. Initial indications are that retail investors bid 2.4 times the shares allocated to them, with a record of 18 lakh applications, and this figure was expected to rise. Ironically, Coal India employees themselves stayed away from the IPO, with their bids amounting to barely 9% of the shares reserved for them.
Understandably, the government, which is looking to divest 10% of its 100% stake in the company, was ecstatic at the positive response. Pranab Mukherjee said the huge demand for the IPO showed the level of investor confidence in premier Indian companies, both in the public and private sector.
"Don't underestimate a government company. These are like hidden treasures," a delighted Coal India chairman Partho Bhattacharya told TOI. ``The size of the IPO is only befitting. Look at it this way: Coal India is the (world's) largest reserve holder and the largest producer. Nobody understood the company. But today everyone is taking it seriously.''
Comparisons are being drawn between this IPO and the Reliance Power IPO that closed in January 2008 and was subscribed 73 times. However, the rules of bidding were markedly different then. During the Reliance Power IPO, institutions were allowed to bid with just 10% margin money. So, if an FII had $50 million to put into the offer, it could actually put in a bid for shares worth $500 million. But a few months ago, Sebi scrapped this practice. So, an FII can bid $50 million for Coal India only if it wants shares worth that much.
Market players also believe with a series of PSUs now lined-up for divestment, the success of this offer would now make the government more confident about these offers. This would also give investors much higher confidence to invest in PSU stocks in general, and the forthcoming divestments in particular, dealers said
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Saturday, October 23, 2010
I-T dept hands Vodafone $2.5bn bill
Source:TNN, Oct 23, 2010, 05.57am IST
NEW DELHI: The I-T department on Friday slapped a tax demand of Rs 11,217.95 crore ($2.5 billion) on Vodafone International Holdings BV, treating it as a defaulter in the $11.07-billion deal to acquire Hutchison Telecommunication's stake in Hutchison Telecommunications India (HTIL).
The tax demand, which has been raised following the direction of Supreme Court on September 27, will have to be met within 30 days. Vodafone had challenged the Bombay High Court ruling that Indian income-tax authorities have jurisdiction to tax Vodafone in relation to the deal with Hutch. The Supreme Court had refused to stay the High Court order and asked the I-T department to raise the actual tax demand. The next hearing of the case is scheduled for October 25.
Vodafone, however, has contested the I-T department's claim. In a statement, the company said: "Vodafone strongly disagrees with the tax calculation released by the Indian tax office. Vodafone continues to believe that it is not liable for any tax on this transaction involving transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain in the transaction."
Under the provision of I-T department, an acquirer of stake in a company needs to collect the capital gains tax from the seller of the stake. In fact, under section 195 of the I-T Act, the buyer is obliged to deduct the tax liability of the seller from value of the deal. "If the buyer does not deduct the tax liability from the payment to the seller, he/she is liable to pay the tax under section 201(1)," a senior I-T official said. In this case, Hutch sold its stake in HTIL for $11.07 billion or around Rs 52,000 crore in 2007 and made huge profit. Capital gains tax is levied at the rate of 11.33% along with surcharge and education cess on non-listed securities. At 11.33%, a senior tax expert said, the tax liability would have been around Rs 5,600 crore. But, the department , he said, would also have levied penal interest on the amount to reach the figure of Rs 11,217.95 crore.
Vodafone argued that the entire deal was completed outside the country, therefore no tax liability can be fixed in India. In this case, Hutchison had sold its stake in the foreign-based holding company of HTIL to Vodafone's subsidiary companies registered overseas. But the tax department argued that the holding company, in which the stake was sold, had only business in India in the form of operation of HTIL.
Therefore, the entire valuation was based on HTIL's business. The deal also led to the change in ownership of HTIL. Therefore, the department decided to raise the capital gains tax in the transaction.
The I-T department flayed the claim that the decision to levy tax will affect the inflow of foreign fund. "Tax dispute with Vodafone will not impact foreign fund inflow," said S S N Moorthy, chairman of Central Board of Direct Taxes of the Mumbai region. In fact, since the department raised the demand, foreign fund inflow has gone up. In the current year so far, India received over $22 billion (Rs 1 lakh crore) foreign fund.
NEW DELHI: The I-T department on Friday slapped a tax demand of Rs 11,217.95 crore ($2.5 billion) on Vodafone International Holdings BV, treating it as a defaulter in the $11.07-billion deal to acquire Hutchison Telecommunication's stake in Hutchison Telecommunications India (HTIL).
The tax demand, which has been raised following the direction of Supreme Court on September 27, will have to be met within 30 days. Vodafone had challenged the Bombay High Court ruling that Indian income-tax authorities have jurisdiction to tax Vodafone in relation to the deal with Hutch. The Supreme Court had refused to stay the High Court order and asked the I-T department to raise the actual tax demand. The next hearing of the case is scheduled for October 25.
Vodafone, however, has contested the I-T department's claim. In a statement, the company said: "Vodafone strongly disagrees with the tax calculation released by the Indian tax office. Vodafone continues to believe that it is not liable for any tax on this transaction involving transfer of a company outside of India. Further, Vodafone was the acquirer and not the vendor and has made no gain in the transaction."
Under the provision of I-T department, an acquirer of stake in a company needs to collect the capital gains tax from the seller of the stake. In fact, under section 195 of the I-T Act, the buyer is obliged to deduct the tax liability of the seller from value of the deal. "If the buyer does not deduct the tax liability from the payment to the seller, he/she is liable to pay the tax under section 201(1)," a senior I-T official said. In this case, Hutch sold its stake in HTIL for $11.07 billion or around Rs 52,000 crore in 2007 and made huge profit. Capital gains tax is levied at the rate of 11.33% along with surcharge and education cess on non-listed securities. At 11.33%, a senior tax expert said, the tax liability would have been around Rs 5,600 crore. But, the department , he said, would also have levied penal interest on the amount to reach the figure of Rs 11,217.95 crore.
Vodafone argued that the entire deal was completed outside the country, therefore no tax liability can be fixed in India. In this case, Hutchison had sold its stake in the foreign-based holding company of HTIL to Vodafone's subsidiary companies registered overseas. But the tax department argued that the holding company, in which the stake was sold, had only business in India in the form of operation of HTIL.
Therefore, the entire valuation was based on HTIL's business. The deal also led to the change in ownership of HTIL. Therefore, the department decided to raise the capital gains tax in the transaction.
The I-T department flayed the claim that the decision to levy tax will affect the inflow of foreign fund. "Tax dispute with Vodafone will not impact foreign fund inflow," said S S N Moorthy, chairman of Central Board of Direct Taxes of the Mumbai region. In fact, since the department raised the demand, foreign fund inflow has gone up. In the current year so far, India received over $22 billion (Rs 1 lakh crore) foreign fund.
Credit cards soon to get a makeover
Source :Tara Siegel Bernard, NYT News Service, Oct 23, 2010, 12.48pm IST
The simple credit card is about to get a makeover.
Next month, Citibank will begin testing a card that has two buttons and tiny lights that allow users to choose at the register whether they want to pay with rewards points or credit, at most any merchant they please.
Other card issuers are testing more newfangled cards, including some that can double as credit and debit cards, and cards with fraud protections baked right into the plastic. One, for instance, shows a portion of the account number only after the cardholder enters a PIN.
The microscopic engine powering the plastic will help breathe new life into a 1950s-era technology — the black magnetic stripe found on the back of the 1.8 billion credit and debit cards circulating in the United States. Much of the world has already moved to using more advanced cards, like the ones in Europe that require a PIN and use a chip instead of a magnetic strip.
Even with the innovations, no one knows how long plastic cards will reign. They may eventually be rendered obsolete by technologies that will transform consumers' cellphones into virtual wallets, and a large number of companies, including Visa, MasterCard and Apple, are developing these. But several card analysts say it will probably take a while before any one technology standard becomes available across all phones and merchants.
In the meantime, banks are hedging their bets. Citi's cards — known as 2G, for second generation — are no thicker and just as flexible as conventional plastic, but they contain a battery with a four-year life, an embedded chip and, of course, the buttons, which took nearly a year and hundreds of thousands of dollars to develop.
"It's a big deal," said Megan Bramlette, director of research for the Auriemma Consulting Group, a payments industry consultant in New York. "If once a month a consumer can fill up their gas tank for free, and they don't have to do anything except push a button before they swipe their card, that's cool. And that is something that I think will resonate with consumers."
Dynamics Inc., the company that developed the minicomputers-in-a-card, said that it had more cards in the works and that its bank partners would introduce its electronic cards on their own schedules.
Citi's cards will be tested by a select group of cardholders beginning in November, though some Citi employees have been testing the cards since May. The pilot program will expand as Citi incorporates user feedback. The bank plans to make the cards available on a broader scale in mid to late 2011.
The 2G card will be offered on two of Citi's existing rewards cards, including the Citi Dividend Platinum Select MasterCard, whose holders earn 1 percent cash back on all purchases and 2 percent on categories that change seasonally, as well as the Citi PremierPass Elite, whose holders generally earn one point for every dollar spent and mile flown.
To pay with points, users press the request-rewards button before swiping the card; the button marked regular credit allows a straight credit transaction.
Pressing the buttons changes the data imprinted on the magnetic stripe, so it still works like conventional plastic and can be swiped through existing card terminals nationwide. At least for now, cardholders need to know how many points they have, and if they don't have enough, the transaction will be processed using credit.
"We've developed a proprietary technology that will allow Citi to do the conversion when the transaction comes through," said Terry O'Neil, executive vice president of Citi Cards. "All they need to do is push that request-rewards button and we take care of everything else for them. They leave the store with the merchandise they selected."
The cards are going to be most valuable to bigger spenders. The average cardholder spends about $6,300 a year, according to The Nilson Report, and, on a typical rewards card, users may earn one point for each dollar spent. At one penny a point, that translates into about $63 in annual rewards. Still, that is enough for a free cup or two of coffee each month.
Citi may yet change its rewards equation or decide that redeeming points at certain locations will yield better returns. "What we want is to get feedback directly from the customers, which will influence how we will roll the cards out," Mr. O'Neil said. "We want to dig a little deeper on what the right redemption model is."
American Express recently made its Membership Rewards points redeemable at Amazon.com, though they are not worth much: one point is equal to seven-tenths of penny that can be spent at the online retailer.
"Creating greater flexibility on how you redeem rewards points has been percolating in the industry for two or three years now," said David Robertson, publisher of The Nilson Report, an industry newsletter. "The novelty of being first to market is a plus for Citi. But I anticipate that other issuers will have the technology as well."
The technology that makes the new Citi card possible was created by Jeffrey D. Mullen, the 32-year-old chief executive of Dynamics, an electrical engineer and former patent lawyer who started the company in 2007 while he was working on his master's degree in business at Carnegie Mellon. Months after he graduated, he secured $5.7 million in venture capital financing from Adams Capital Management. (Citi initially declined to issue him one of the electronic cards he had created, because he had used his entire credit line to start the company. He ultimately received one.)
"We are just scratching the surface with what these cards can do with these initial products," said Mr. Mullen, whose innovation won business plan competitions, as well as $1 million in free advertising at a recent technology conference. "We are trying to be the innovation arm of an industry that has never had one. With this card, which is the baby-step card, you need to acclimate the consumer."
Another Dynamics card would allow cardholders to have multiple accounts on one card, like a corporate and personal card. The company introduced another card this week, which he said would reduce fraud associated with "skimming," when thieves steal your account number using a small scanner, but not your physical card.
All the cards, which are being produced by laptop and cellphone manufacturers, were tested by robots to make sure they would hold up for thousands of swipes. They can also withstand the washing machine. Clearly, they cost more to develop than conventional plastic; Mr. Mullen declined to provide specifics. Citi said it had not yet determined whether customers would be required to pay for the cards once officially introduced.
"The US is the last bastion of the magnetic-stripe technology and shows no near-term desire to switch to chip technology," said Mr. Robertson of The Nilson Report. "So what Dynamics is doing is extending the life of the mag stripe by adding a number of features that you find on chip cards.
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