Business standard updates 1-3-2012

Kingfisher promoters may convert loans into equity

BS REPORTER & AGENCIES Mumbai, 29 February Promoters of Kingfisher Airlines might convert ~1,500 crore they lent to the airline into equity, chief executive Sanjay Aggarwal told news agency Dow Jones today. The UB Group-run Kingfisher Airlines is seeking fresh credit support to revive the airline following three successive loss-making seasons. Lenders are yet to approve Kingfishers request for fresh funds, including working capital loans and guarantees, and have sought the promoters bring in equity to recapitalise the airline. The conversion of debt into equity will help fulfil the condition. The airline expected the debt conversion as well as additional funding from external investors and more loans to help it raise $500-600 million (roughly ~2,500-3,000 crore) in sixeight weeks, Aggarwal said. The airline spokesperson did not respond to an SMS query sent by this paper. “We are in talks with several investors in India and overseas,” Aggarwal said. “Apart from that, our founders have 10 billion rupees (~1,000 crore) in loans with the airline and another five billion rupees (~500 crore) in optionally convertible debentures, which can be converted into equity," he said. Last Tuesday, Kingfisher Airlines allotted equity shares against optionally convertible debentures (OCDs) to save interest costs. In a filing to the Bombay Stock Exchange, the airline said it had issued 79.8 million equity shares to LKP Securities, Redect Consultancy and Star Investments at ~25.01 apiece, in lieu of conversion of debentures. Kingfisher has debt of about ~6,000 crore, following a restructuring exercise in November 2010. As part of that, promoter loans of ~656 crore were converted into compulsorily convertible preference shares. Another ~1,137 crore worth intercorporate deposits were converted into OCDs to reduce the debt burden. Meanwhile, civil aviation minister Ajit Singh told reporters in Bangalore today Kingfisher Airlines could not be closed just because it was making losses and banks were not helping it with funds. "You cant close down a company because they are making losses or banks are not giving them money. As long as passenger safety is not jeopardised, as long as they keep their schedule, why should we close down any industry?" Singh said. Losses and lack of bank funds no reason to shut company, says minister “We are in talks with several investors in India and overseas“ SANJAYAGGARWAL CEO, Kingfisher Airlines

Madras HC orders shutdown of Subhiksha

BS REPORTER Chennai, 29 February The Madras High Court today ordered the winding up of Subhiksha Trading Services. The order came in response to a winding-up petition filed by Kotak Mahindra Bank, to which Subhiksha owes around ~40 crore. The court also ordered the official liquidator to take over the assets of the 1997-founded Subhiksha and gave the retain chain three weeks time to respond. Today’s order was in response a petition filed by Kotak, which has been fighting since 2008, saying that the company has failed to repay the amounts due to the bank. RSubramaniam, founder managing director of city-based Subhiksha, said that the company would finalise its course of action on receiving the written order. The chain ran out of cash in 2008-09 after relying on a high level of debt. Problems, though, had begun for Subhiksha in October 2008, when it had started receiving legal notices for outstanding payment. In January 2009, the retail chain was forced to shut down over 1,600 or more retail shops after it went into a cash crunch and defaulted to the tune of around ~750 crore to 13 banks. Earlier Kotak said four more creditors, including Azim Premji led HCL, were supporting the winding-up. In 2009, Subhiksha’s subsidiary and shareholder, Cash and Carry Wholesale Traders, came out with a compromise petition to reach a settlement with the creditors and vendors. That, was dismissed by the Madras High Court in August 2009, stating that the proposal for revival cannot be termed as feasible. Fourteen months later, on October 26, 2010, Justice V Ramasubramanian of the Madras High Court dismissed Subhiksha’s merger proposal with Cash and Carry. Then bench raised serious objections and doubts on the ~230 crore, which was claimed to be transferred between Subhiksha Services Limited and Blue Green Constructions & Investments Limited. The court, also observing inventories worth ~551 crore had vanished, dismissed the proposal, stating that it was mainly to protect Public interest, said that the revival plan submitted by Subhiksha, was based on certain presumptions including infusion of ~150 crore, as equity at par, infusion of ~100 crore, as fresh debt/debt convertible into equity, incorporating the effect of debt restructuring, utilisation of ~51 crore, of the infused cash to create the balancing investments in the fixed assets. The case went from one court to other, including the apex court, company court, high court. After hearing long arguments, in the past few months, the high court today passed the order to wind up the company.

Bankers forguidelines on restructured assets

BS REPORTER Mumbai, 29 February Indian banks have asked the Reserve Bank of India (RBI) to announce proper guidelines on the classification of restructured assets, particularly for cases in which repayments are regular, under the revised schedule. RBI deputy governor K C Chakrabarty today met top bankers in Mumbai and discussed the rising non-performing assets (NPAs) in the system. Stress in sectors like textile, steel, mining and aviation was also discussed, bankers said. In the meeting, lenders said if restructured assets continued to perform well, according to the restructured schedule for a certain period of time, these should be taken off the restructured book and upgraded into standard assets. This would reduce the provisioning burden on banks. Pratip Chaudhuri, chairman, State Bank of India, said, "We said according to our definition of NPAs (non-performing assets), the restructuring definition should have atimeline. If an account adheres to the revised schedule for two years, so that there is definite proof it is performing, it should be taken out of the categorisation of the restructured account." Currently, there was no definite timeline on the upgradation of a restructured asset, he added. "Today, there is a lot of mystery about what is restructured. Everything restructured is seen as equivalent to an NPA. Restructured means the dues are not being paid according to the schedule, not according to the revised schedule. But the ultimate recovery of the debt is not in doubt. The probation period and when it needs to exit restructuring need to be more clearly defined," he said, replying to queries after the meeting. MNarendra, chairman, Indian Overseas Bank, said, "This was a general review. It was also aimed at finding out what the sector-wise issues are. The NPA situation is very much manageable and under control. Sectors like textile and aviation did get a special mention from the regulator." Of late, most banks have been plagued with mounting restructured assets, which has led to higher provisioning in stressed sectors. Rising interest rates and the slowdown in the economy are seen as major reasons behind this. Sectors like aviation, textile, infrastructure, iron and steel and telecom have been the worst hit. Loans worth ~50,250 crore were referred for corporate debt restructuring (CDR) during the April-December period of the current financial year. Currently, total outstanding loans referred for restructuring are worth ~1.43 lakh crore, according to CDR forum data. With a share of 26.8 per cent, the iron and steel sector accounts for most of these, followed by infrastructure (12 per cent) and textiles (eight per cent). Say if assets perform well, they should be upgraded RBI Deputy Governor K C Chakrabarty met bankers in Mumbai and discussed the rising NPAs in the system

Patent rights?

The Geneva-based World Intellectual Property Organisation (WIPO) has moved forward on the creation of asingle text for discussions in the area of genetic resources. The use of genetic resources and traditional knowledge for industrial application through patents has been an issue of debate for many years at the World Trade Organisation (WTO) and WIPO. The new text was discussed at the 20th session of the WIPO Intergovernmental Committee on Genetic Resources, Traditional Knowledge, and Folklore (IGC) in February. The committee was set up over a decade ago to sort out the differences between countries that are rich in genetic resources and traditional knowledge and the developed world that uses these genetic resources for developing patents for industrial use. One of the most contentious issues in creating this single legal text started with some of the developed countries seeking to change the term intellectual property rights (IPR) mentioned in the text to patents. However, countries like Bolivia that supported the use of IPR said the term needed to have boarder coverage since patents, as aterm, had a narrow focus, while IPR also included geographical indications. The new text provides different options that can be chosen by countries for defining some important terms. For example, for defining “genetic resources” the text provides two options. The first option provided for discussions stated that “genetic resources” are genetic material of actual or potential value, while the second option defines “genetic resources” as it is understood in the CBD (convention on bio diversity) and related instruments and the International Treaty on Plant Genetic Resources for Food and Agriculture. The other area of concern for developing countries has been the need for patent seekers to state the source from where the genetic resources have been obtained and also provide details of any traditional knowledge that may be associated with these. Developed countries like the US and Japan are of the view that mandatory disclosure of such information will make the job of patent seekers very difficult. The US felt the need for carrying out studies to see the impact of such a move that did not find support from many countries like Egypt, South Africa and India. The African group was, reportedly, of the view that there are several studies that exist and they can be put together by WIPO for better understanding. India, reportedly, made a strong statement at the meeting that there are enough instances of how available genetic resources and traditional knowledge had been used freely by patent seekers without acknowledging the source of the genetic resource or the traditional knowledge attached to it. A few countries tried to overcome this issue by stating that WIPO may put together a nonbinding document that lists out the genetic resources and traditional knowledge available in different countries. However, many others who support the need to acknowledge the presence of genetic resources in patents were of the view that non-binding documents would not serve the purpose. The debate on the use of genetic resources and traditional knowledge has been going on for a long time since developing countries fail to make profit because of the use of genetic resources by patent seekers that are later developed into business products by industry. The IGC, which was set up with the aim of resolving the dispute, has certainly come a long way to look at issues on both sides of the table. However, it is important for countries to ensure that the rights of the owners of genetic resources and the traditional knowledge associated with it is acknowledged and rewarded. Patents are extremely important instruments to provide a push to inventions that galvanise industry into making better products. However, any move that takes away the original rights of the people who own the resources would be unfair. The possible exclusion of the rights of people was evident when the indigenous people who attend the meeting of the IGC staged a walkout stating that they were not being heard in these meetings. If WIPO has to be seen as a transparent and fair organisation that balances the developmental need of members with genetic resources with the need for providing a push to inventions and innovation in industry, then it will have to find the right mix of proposals in the final document on this contentious issue. The author is Principal Adviser with APJ-SLG Law Offices WIPO must protect the developmental needs of countries with genetic resources as it pushes for inventions and innovation in industry TRADE MATTERS TS VISHWANATH

Road to IPO gets longer

SAMIE MODAK Mumbai, 29 February The Securities and Exchange Board of India (Sebi) is working on reducing the time gap between the close of initial public offers (IPO) and their listing, but the timeline for getting approvals for these share sales seems never-ending for some firms. At least 15 companies planning public offerings have waited for over a year to get regulatory approvals, according to processing data released by the capital market regulator on February 24. Companies facing more than ayears delay include Shirdi Industries, Jain Infraprojects and Jawed Habib Hair and Beauty. The Sebi website lists the issue status in most of these issues as under process. In some others, it is shown as ‘clarifications sought ‘. Shirdi Industries, which filed the IPO in April 2010, has waited for over 600 days. At present, there are more than 70 companies which have filed their draft offer documents with the market regulator. Its not just the private companies that have been facing delays. Even government-owned Bharat Heavy Electricals Ltd (BHEL), which had filed the offer document for a follow-on public offering (FPO) in September 2011, is yet to get a go-ahead. Uncertainty over getting a final nod has been hurting merchant bankers as issue planning becomes a challenge for them. Besides, a long delay means most of the information provided in the offer documents, including results, becomes outdated. Once a company files draft red herring prospectus, the regulator is supposed to come up with remarks and observations within 30 days. Merchant bankers say Sebi seeks clarification or additional information just ahead of the stipulated time, which results in delays. Merchant bankers have already met Sebi chairman U K Sinha to discuss this issue. "The chairman assured us that it will put in place a timeline, but would also ask for better disclosures from merchant bankers and companies,” said an investment banker, who claimed to have met the Sebi chairman on this issue. In a recent seminar, Sinha had said the issuer companies should also share the blame for delays as in some cases, these companies deliberately delay sharing information sought by the regulator because market conditions are not favourable. Sebi approvals are valid for one year. If the company fails to sell shares within this period, it has to approach the regulator again. According to primary market observers, the average time lag between filing offer documents and receiving final approval has increased to about six months, from three months, earlier. In the past, Sebi had taken about 400 days to give a final approval to RDB Rasayans and Rushil Decor. Maybe, the regulators apprehensions in giving these companies a go-ahead to launch public offerings were valid, as both ended among the seven companies which were recently banned by Sebi for allegedly violating IPO norms. Among other prominent companies, which took about six months to get their IPO documents cleared, include Future Ventures, Raheja Universal and Greatship India. While the former launched its offering, the latter two had to defer their IPO plans due to weak market conditions. National Buildings Construction Corporation Ltd (NBCC), which filed its issue prospectus earlier this month, is also expecting an approval. The NBCC IPO, which is part of this years disinvestment programme, has already started conducting roadshows. At least 15 companies await Sebi nod for over a year Sebi approvals are valid for one year. If the company fails to sell shares within this period, it has to approach the regulator again.