Sun Pharmaceutical has acquired InSite Vision, a US-based specialty ophthalmic product maker, in a $48 million (about Rs 320 crore) deal. The acquisition will enable Sun Pharma, India's largest drug maker by revenue, to grow its US business. The US sales make up for about half of its consolidated revenue.
Sun Pharma said it was developing branded ophthalmic business in the US and acquisition of InSite Vision and in-licencing of Xelpros eye drops were steps in that direction.
For the six-month period ended June 30, InSite Vision reported revenue of $3.8 million, Ebitda loss of $6.4 million and a net loss of $7.5 million. InSite Vision's core competence is research and product development, and has research facilities in California. However, the company has been facing fund shortages, sources said.
Kal Sundaram, chief executive of Sun Pharma's North American business, said, "This potential acquisition is a part of our overall objective of transitioning to a specialty company. Besides dermatology, we have identified ophthalmics as one of the key segments for establishing our branded presence in the US."
Jerry St Peter, vice-president and head of Sun Pharma's US ophthalmic business, said, "The potential addition of the InSite Vision portfolio serves as a significant step towards enhancing our branded specialty pipeline in the ophthalmic segment. InSite Vision will bring with it a pipeline of three late-stage clinical candidates, validated drug delivery technology and a track record of achieving US FDA approval for ophthalmic products." The company has two branded eye drops, which are marked by other companies.
The size of ophthalmic product business is about $7 billion and top five companies in the space control over 95 per cent market share.
Success in my Habit
Saturday, September 19, 2015
Railways, Maharashtra government to set up Special Purpose Vehicle for railway infrastructure
In a bid to give boost to Railway infrastructure projects in the state, the Maharashtra government on Wednesday has decided to form the Maharashtra Railway Infrastructure Development Company. The decision was taken after Maharashtra Chief Minister Devendra Fadnavis held a review meeting with Railway officials of various development projects pending in the state.
The Maharashtra government has said that the Company which is a Special Purpose Vehicle (SPV) has been formed to ensure that the various development projects are completed in a time bound manner. Fadnavis would soon be meeting Railway Minister Suresh Prabhu in order to fix the modalities of how Railway officials would be members in this company and how many funds would be allocated by the Railways as well as by the state for the company.
Some of the projects that would be undertaken through this SPV would be the setting up of the Beed-Parli- Baijnath railway line. In Marathwada the state would also use the SPV to clear the decks for the land acquisition for the Wardha- Yavatmal- Nanded line.
Fadnavis also discussed with Railway officials to prepare a plan for building a Metro from the Mumbai Airport to Naina in Navi Mumbai in order to connect to the new Navi Mumbai airport and also asked Railway officials to simultaneously prepare a detailed plan for an elevated line from CST to Panvel.
The Maharashtra government has said that the Company which is a Special Purpose Vehicle (SPV) has been formed to ensure that the various development projects are completed in a time bound manner. Fadnavis would soon be meeting Railway Minister Suresh Prabhu in order to fix the modalities of how Railway officials would be members in this company and how many funds would be allocated by the Railways as well as by the state for the company.
Some of the projects that would be undertaken through this SPV would be the setting up of the Beed-Parli- Baijnath railway line. In Marathwada the state would also use the SPV to clear the decks for the land acquisition for the Wardha- Yavatmal- Nanded line.
Fadnavis also discussed with Railway officials to prepare a plan for building a Metro from the Mumbai Airport to Naina in Navi Mumbai in order to connect to the new Navi Mumbai airport and also asked Railway officials to simultaneously prepare a detailed plan for an elevated line from CST to Panvel.
NHAI global arm to build roads in Iran, Sri Lanka, Nepal and Bhutan
New Delhi: With offers to build roads and highways in Iran, Sri Lanka, Nepal and Bhutan coming its way, the National Highways Authority of India (NHAI) has decided to go global, and Roads, Highways and Transport Minister Nitin Gadkari will soon set up a separate body — NHAI International — to tap into road building possibilities outside India.
NHAI International will be a set-up outside the existing ambit of NHAI and will have its offices in several countries. It will work as a contractor mostly in neighbouring countries on the same model as railways PSUs -- IRCON, Railtel and RITES -- are undertaking construction and consultancy projects internationally.
"Recently, Iranian foreign Minister met the roads minister in Delhi and requested him to take up the roads and highways construction projects in Iran. We have an excellent opportunity to go international," a senior government official said on the condition of anonymity.
"The ministry has similar proposals from Nepal, Sri Lanka and Bhutan. We could get similar opportunities in Myanmar and several west Asian countries," the official said. The step would open up a revenue stream for the roads ministry that is planning to award contract worth Rs 5 lakh crore in India in the coming years.
The government has decided to increase India's national highways network to 1.5 lakh km within a year by adding 50,000 km more to the existing network. Roads ministry is already in the process to increase its road building capacity with the target of achieving 30 km of roads construction every day by March 2016. The government is also planning to set up a separate body to undertake its expressways project. The ministry has planned to build more than eight expressways at a cost of Rs 16,500 crore.
"There's a committee set up for the revamp of NHAI. So, we'll act as per its recommendations," the official added.
Other than building roads, the Nitin Gadkari-led ministry is also expanding its wing to build other mass transit projects connecting major cities with the suburbs. There's a proposal to build Rs 4,000 crore mass rapid transport system that connects Manesar to Dhaula Kuan. The work on the project is expected to start by the end of this year.
Under this project, small, fully automatic, driverless vehicles known as pods will travel suspended under an overhead network. The overhead network will be laid on the median of the highway stretch. The project will cost Rs 50 crore per km as against Rs 350 crore per km cost of building a metro network. The government is likely to set up a separate body on the lines of DMRC to build more such projects around the National Capital Region (NCR) and other big cities.
NHAI International will be a set-up outside the existing ambit of NHAI and will have its offices in several countries. It will work as a contractor mostly in neighbouring countries on the same model as railways PSUs -- IRCON, Railtel and RITES -- are undertaking construction and consultancy projects internationally.
"Recently, Iranian foreign Minister met the roads minister in Delhi and requested him to take up the roads and highways construction projects in Iran. We have an excellent opportunity to go international," a senior government official said on the condition of anonymity.
"The ministry has similar proposals from Nepal, Sri Lanka and Bhutan. We could get similar opportunities in Myanmar and several west Asian countries," the official said. The step would open up a revenue stream for the roads ministry that is planning to award contract worth Rs 5 lakh crore in India in the coming years.
The government has decided to increase India's national highways network to 1.5 lakh km within a year by adding 50,000 km more to the existing network. Roads ministry is already in the process to increase its road building capacity with the target of achieving 30 km of roads construction every day by March 2016. The government is also planning to set up a separate body to undertake its expressways project. The ministry has planned to build more than eight expressways at a cost of Rs 16,500 crore.
"There's a committee set up for the revamp of NHAI. So, we'll act as per its recommendations," the official added.
Other than building roads, the Nitin Gadkari-led ministry is also expanding its wing to build other mass transit projects connecting major cities with the suburbs. There's a proposal to build Rs 4,000 crore mass rapid transport system that connects Manesar to Dhaula Kuan. The work on the project is expected to start by the end of this year.
Under this project, small, fully automatic, driverless vehicles known as pods will travel suspended under an overhead network. The overhead network will be laid on the median of the highway stretch. The project will cost Rs 50 crore per km as against Rs 350 crore per km cost of building a metro network. The government is likely to set up a separate body on the lines of DMRC to build more such projects around the National Capital Region (NCR) and other big cities.
Govt makes Rs 3,000 cr from first batch of Phase 3 FM auctions
HT Media Ltd, the owner of the Fever FM radio station, outspent rivals to win 10 licences, including one for the sole available frequency in Delhi, in the electronic auctions for private FM radio. The company spent Rs.340 crore in the auctions that concluded on 8 September.
Entertainment Network India Ltd (ENIL), the radio broadcasting unit of Bennett, Coleman and Co. Ltd, won 17 licences for Rs.339 crore.
Other radio operators that won licences include Music Broadcast Pvt. Ltd, which is now a part of the Dainik Jagran Group, Reliance Broadcast Network Ltd (RBNL), DB Corp. and Rajasthan Patrika Pvt. Ltd. RBNL invested Rs.117 crore in the auctions.
The results of the first batch of the Phase 3 of FM radio auctions were declared by the ministry of information and broadcasting on Wednesday and posted on its website. However, the ministry withheld the results for three Sun group companies—Sun TV, South Asia FM and Kal Radio— in compliance with a Madras high court order.
After these auctions, Fever 104, the FM radio brand of HT Media, will expand its presence from four cities to 13 with 15 licences. The company, which picked up Delhi for Rs.169.2 crore, also won frequencies in Mumbai and Hyderabad and bought a number of stations in Uttar Pradesh.
“We are entering the UP market with seven new stations. Lucknow, Kanpur, Agra, Aligarh and Gorakhpur purchased at reserve price along with Bareilly and Allahabad,” said Harshad Jain, chief executive of Fever 104 FM. Fever FM hopes to leverage its synergy with Hindustan, the Hindi newspaper of HT Media, in expanding in Hindi-speaking markets. Jain added that with Hyderabad in its kitty, the company had completed its six-metro strategy.
ENIL’s Radio Mirchi will now own 49 stations all over the country, up from 32. Radio Mirchi’s 49 station network also includes the licences it bought for Amritsar, Patiala, Shimla and Jodhpur from Oye FM of the India Today Group. Among the new cities, the company has acquired frequencies in Chandigarh, Kochi, Kozhikode, Jammu, Srinagar, Guwahati, Shillong and second frequencies in Bengaluru, Hyderabad, Ahmedabad, Pune, Kanpur and Lucknow, among others.
Big FM, the FM brand of RBNL, has added 14 new stations to its existing 45. “We continue our leadership position in India…focusing on key cities such as Pune, Nagpur, Lucknow, Patna, Varanasi, Kolhapur among others. We now have an overall presence of 59 stations with newly acquired frequencies in key states of Maharashtra, Uttar Pradesh, Bihar and northeast India,” said chief executive Tarun Katial.
The Dainik Jagran group, too, won 11 frequencies and will now have a network of 39 stations, including the stations under the Radio Mantra and Radio City brands. Apurva Purohit, CEO, Radio City 91.1 FM, said that Music Broadcast Pvt. Ltd (owned by Jagran) had won frequencies in the markets that it was keen on. “This increases our footprint across important cities in each state as we become a 39 station network. Together Radio City and Radio Mantra will be dominant players in important state clusters and continue our successful phase 2 strategy of concentrating on advertiser relevant markets,” she said.
The electronic auctions that ran 125 rounds and lasted 32 days had on offer 135 channels in 69 cities. The total value of sold channels was Rs.1,187 crore. However, the government made more than Rs.3,000 crore from these auctions, including the migration fee from 245 stations that will move from Phase 2 to Phase 3.
Pleased with the company’s success at the auctions, Fever 104 FM’s Jain said that radio has a huge growth potential with its high listenership among youth, the biggest population segment in India. “Fever...is in a commanding leadership position in its existing markets of Delhi and Bengaluru and is the fastest growing station in Mumbai and Kolkata. With our investment in the FM Phase 3 e-auction…we are expecting impressive returns from our new stations as well.”
ENIL CEO Prashant Panday said that the company will roll out the Mirchi brand in all the new towns it has got, including the four cities acquired via Oye FM. Katial, too, is hoping to launch some of the new frequencies within this fiscal.
Fever 104, the radio station brand of HT Media that publishes the Hindustan Times and Mint, competes with different radio stations in several markets which participated in these auctions.
To be sure, some licences in the metros such as Delhi, Mumbai and Bengaluru were sold steeply even as 30% of the stations and 20 cities remained unsold. Delhi, for instance, was sold for Rs.169.2 crore, while the two frequencies in Mumbai were picked up for Rs.122.8 crore each. Bengaluru too went for a high Rs.109.2 crore.
According to Smita Jha, media practice head at consulting firm PriceWaterHouseCoopers, the auctions can be deemed successful on two counts—that it fetched the government 110% on its reserve price and that it was an absolutely transparent ascending e-auction. Agreed Jehil Thakkar, partner and head of media and entertainment at KPMG: “In terms of revenue to the government, the auctions were hugely successful.” However, he added that the scarcity of spectrum in the metros pushed the prices very high for radio operators in these cities.
According to Panday, there were too few frequencies in the metros. “After 9.5 years, the government offered one frequency in important cities like Delhi, Bengaluru, Chennai, Jaipur, and Ahmedabad...clearly, the prices reached in these cities is because of ‘scarcity premium’. These are not fair market prices, and the government must consider the auctions to be a failure, not a success.”
He does not think that some of these stations will make money in a hurry at these prices. “Not for at least five years. At these prices, the winners will have to do more revenues than even their first frequencies are doing. This is difficult, even if not impossible. And if there is one bad economic patch in the next five years, then the loss period will be extended further,” he said.
However, Fever’s Jain disagrees. He said that the metro markets are the largest advertising markets for FM radio channels. Besides, the second stations will come up at no significant additional infrastructure cost. Fever, which now has two frequencies each in Delhi and Mumbai, could tap the same sales team for advertising. “That’s not all. This time, the licence period is 15 years giving us a better leeway to make money,” he added.
Currently, the radio sector is seeing a compound annual growth rate of 18% and will touch revenue of Rs.3,950 crore in 2019 compared with Rs.1,960 crore in 2015, according to the 2015 media and entertainment industry report by the Federation of Indian Chambers of Commerce and Industry and KPMG.
Entertainment Network India Ltd (ENIL), the radio broadcasting unit of Bennett, Coleman and Co. Ltd, won 17 licences for Rs.339 crore.
Other radio operators that won licences include Music Broadcast Pvt. Ltd, which is now a part of the Dainik Jagran Group, Reliance Broadcast Network Ltd (RBNL), DB Corp. and Rajasthan Patrika Pvt. Ltd. RBNL invested Rs.117 crore in the auctions.
The results of the first batch of the Phase 3 of FM radio auctions were declared by the ministry of information and broadcasting on Wednesday and posted on its website. However, the ministry withheld the results for three Sun group companies—Sun TV, South Asia FM and Kal Radio— in compliance with a Madras high court order.
After these auctions, Fever 104, the FM radio brand of HT Media, will expand its presence from four cities to 13 with 15 licences. The company, which picked up Delhi for Rs.169.2 crore, also won frequencies in Mumbai and Hyderabad and bought a number of stations in Uttar Pradesh.
“We are entering the UP market with seven new stations. Lucknow, Kanpur, Agra, Aligarh and Gorakhpur purchased at reserve price along with Bareilly and Allahabad,” said Harshad Jain, chief executive of Fever 104 FM. Fever FM hopes to leverage its synergy with Hindustan, the Hindi newspaper of HT Media, in expanding in Hindi-speaking markets. Jain added that with Hyderabad in its kitty, the company had completed its six-metro strategy.
ENIL’s Radio Mirchi will now own 49 stations all over the country, up from 32. Radio Mirchi’s 49 station network also includes the licences it bought for Amritsar, Patiala, Shimla and Jodhpur from Oye FM of the India Today Group. Among the new cities, the company has acquired frequencies in Chandigarh, Kochi, Kozhikode, Jammu, Srinagar, Guwahati, Shillong and second frequencies in Bengaluru, Hyderabad, Ahmedabad, Pune, Kanpur and Lucknow, among others.
Big FM, the FM brand of RBNL, has added 14 new stations to its existing 45. “We continue our leadership position in India…focusing on key cities such as Pune, Nagpur, Lucknow, Patna, Varanasi, Kolhapur among others. We now have an overall presence of 59 stations with newly acquired frequencies in key states of Maharashtra, Uttar Pradesh, Bihar and northeast India,” said chief executive Tarun Katial.
The Dainik Jagran group, too, won 11 frequencies and will now have a network of 39 stations, including the stations under the Radio Mantra and Radio City brands. Apurva Purohit, CEO, Radio City 91.1 FM, said that Music Broadcast Pvt. Ltd (owned by Jagran) had won frequencies in the markets that it was keen on. “This increases our footprint across important cities in each state as we become a 39 station network. Together Radio City and Radio Mantra will be dominant players in important state clusters and continue our successful phase 2 strategy of concentrating on advertiser relevant markets,” she said.
The electronic auctions that ran 125 rounds and lasted 32 days had on offer 135 channels in 69 cities. The total value of sold channels was Rs.1,187 crore. However, the government made more than Rs.3,000 crore from these auctions, including the migration fee from 245 stations that will move from Phase 2 to Phase 3.
Pleased with the company’s success at the auctions, Fever 104 FM’s Jain said that radio has a huge growth potential with its high listenership among youth, the biggest population segment in India. “Fever...is in a commanding leadership position in its existing markets of Delhi and Bengaluru and is the fastest growing station in Mumbai and Kolkata. With our investment in the FM Phase 3 e-auction…we are expecting impressive returns from our new stations as well.”
ENIL CEO Prashant Panday said that the company will roll out the Mirchi brand in all the new towns it has got, including the four cities acquired via Oye FM. Katial, too, is hoping to launch some of the new frequencies within this fiscal.
Fever 104, the radio station brand of HT Media that publishes the Hindustan Times and Mint, competes with different radio stations in several markets which participated in these auctions.
To be sure, some licences in the metros such as Delhi, Mumbai and Bengaluru were sold steeply even as 30% of the stations and 20 cities remained unsold. Delhi, for instance, was sold for Rs.169.2 crore, while the two frequencies in Mumbai were picked up for Rs.122.8 crore each. Bengaluru too went for a high Rs.109.2 crore.
According to Smita Jha, media practice head at consulting firm PriceWaterHouseCoopers, the auctions can be deemed successful on two counts—that it fetched the government 110% on its reserve price and that it was an absolutely transparent ascending e-auction. Agreed Jehil Thakkar, partner and head of media and entertainment at KPMG: “In terms of revenue to the government, the auctions were hugely successful.” However, he added that the scarcity of spectrum in the metros pushed the prices very high for radio operators in these cities.
According to Panday, there were too few frequencies in the metros. “After 9.5 years, the government offered one frequency in important cities like Delhi, Bengaluru, Chennai, Jaipur, and Ahmedabad...clearly, the prices reached in these cities is because of ‘scarcity premium’. These are not fair market prices, and the government must consider the auctions to be a failure, not a success.”
He does not think that some of these stations will make money in a hurry at these prices. “Not for at least five years. At these prices, the winners will have to do more revenues than even their first frequencies are doing. This is difficult, even if not impossible. And if there is one bad economic patch in the next five years, then the loss period will be extended further,” he said.
However, Fever’s Jain disagrees. He said that the metro markets are the largest advertising markets for FM radio channels. Besides, the second stations will come up at no significant additional infrastructure cost. Fever, which now has two frequencies each in Delhi and Mumbai, could tap the same sales team for advertising. “That’s not all. This time, the licence period is 15 years giving us a better leeway to make money,” he added.
Currently, the radio sector is seeing a compound annual growth rate of 18% and will touch revenue of Rs.3,950 crore in 2019 compared with Rs.1,960 crore in 2015, according to the 2015 media and entertainment industry report by the Federation of Indian Chambers of Commerce and Industry and KPMG.
RBI issues 10 small bank licences
Mumbai: The Reserve Bank of India (RBI) on Wednesday granted 10 entities in-principle licences to open so-called small finance banks—another move towards expanding access to financial services in rural and semi-urban areas.
Ujjivan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd and Equitas Holdings Ltd are among the 10 entities. The others are Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.
Larger financial services firms such as Dewan Housing Finance Ltd, IIFL Holdings Ltd, SKS Microfinance Ltd and UAE Exchange and Financial Services Ltd did not qualify for the licences. No publicly traded entities have been included in the list.
Small finance banks will offer basic banking services, accepting deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector, RBI said when it released guidelines for such banks in November.
Eight out of the 10 entities granted the in-principle approval, which is valid for 18 months, are microfinance institutions. The exceptions are Capital Local Area Bank Ltd, which operates in five districts of Punjab, and Au Financiers. Local-area banks are institutions that lend in contiguous districts, mobilizing rural savings and making them available for local investments. Au Financiers is a non-banking financial company.
For microfinance firms that give tiny loans to low-income earners, the key incentive for converting into small finance banks will be the access they gain to deposits; they will also be able to offer a wider range of loan products to customers.
The licensing of small finance banks follows 11 payment bank licences given out by RBI last month to provide basic savings, and deposit, payment and remittance services to people without access to the formal banking system. Payments banks will not be in the business of lending.
Both initiatives are aimed at furthering financial inclusion, which the Bharatiya Janata Party-led National Democratic Alliance government has made one of its top priorities since it assumed office in May 2014.
It has launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) to ensure a bank account for every household, offering accidental insurance cover of Rs.1 lakh, life insurance cover of Rs.30,000 and easy transfer of money across India as sweeteners. As of 12 August, 175.7 million bank accounts had been opened under the scheme, according to the PMJDY website.
In a statement released on Wednesday, RBI said it had selected the 10 candidates to start small finance banks after three different committees conducted a detailed case study of each applicant.
“Going forward, the Reserve Bank intends to use the learning from this licensing round to appropriately revise the guidelines and move to giving licences more regularly, that is, virtually ‘on tap.”’
After setting up a bank, it would take nearly two years to merely stabilize the operation, said Samit Ghosh, founder and managing director, Ujjivan Financial Services. Ujjivan’s loan book stands at about Rs.3,300 crore and it plans to continue its focus on smaller borrowers, he said.
“The next 18 months are going to be a lot of hard work. We have to figure out ways to bring down the 90% foreign shareholding in the company since RBI has strict guidelines for it. We will be looking at various options including private placements,” said Ghosh.
According to the current policy, the aggregate foreign investment in a private sector bank from all sources is capped at 74% of its paid-up capital.
Ahmedabad-based Disha Microfin said its focus will be to expand in the central and western Indian states where there is a huge base of unbanked customers.
“The initial challenge will be to restructure and transform into a bank from a non-banking financial institution and offer multiple banking products,” said Rajeev Yadav, director of Disha group, which runs the Ahmedabad-based microfinance company.
In total, 72 entities applied for a small finance bank licence. The applications were reviewed by a committee headed by former RBI deputy governor Usha Thorat.
“It is clear from the list (of licensees) that the RBI’s bias is towards people who have proved themselves in the priority lending space. Since larger banks have always felt it to be a drag on their books, these entities will be able to fill that gap and serve smaller customers,” said Abizer Diwanji, partner and national leader, financial services, EY.
According to Diwanji, the ability to maintain a full-fledged treasury department would be one of the advantages of turning into a small finance bank, apart from access to deposits and the opportunity to offer a wider range of loan products.
“But these will also be the biggest challenges, since these are players who have not had much experience in these services,” Diwanji said.
To be sure, the transformation will not be easy.
“For the initial few years, lives are going to be difficult for the licensees. Some extremely large challenges include the ability to form a sustainable business model and gaining trust from the depositors. However, this sector is capable of achieving these things,” said Alok Prasad, industry expert and former chief executive officer of Microfinance Institutions Network, an industry body for microlenders.
One challenge will be the prudential norms they have to adhere to.
Small finance banks will be subject to most of the prudential norms that scheduled commercial banks have to adhere to. For instance, they need to maintain a cash reserve ratio (CRR), or portion of deposits to be set aside with the central bank, and statutory liquidity ratio (SLR), or the portion of deposits to be invested in government securities, as stipulated for commercial banks.
Seventy-five percent of the credit advanced by small finance banks will need to go to sectors that are considered part of the so-called priority sector, which includes agriculture, small enterprises and low-income earners. Commercial banks have to mandatorily lend 40% of their net bank credit to such sectors.
Small finance banks will also have to ensure that 50% of their loan portfolio constitutes advances of up to Rs.25 lakh, said RBI.
Such banks can eventually apply to RBI to transit into universal banks once they have established a satisfactory track record. Such a transition would be subject to due diligence by the banking regulator.
The minimum paid-up equity capital for small finance banks was set at Rs.100 crore and the minimum initial contribution from promoters fixed at 40%.
Ujjivan Financial Services Pvt. Ltd, Janalakshmi Financial Services Pvt. Ltd and Equitas Holdings Ltd are among the 10 entities. The others are Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd, and Utkarsh Micro Finance Pvt. Ltd.
Larger financial services firms such as Dewan Housing Finance Ltd, IIFL Holdings Ltd, SKS Microfinance Ltd and UAE Exchange and Financial Services Ltd did not qualify for the licences. No publicly traded entities have been included in the list.
Small finance banks will offer basic banking services, accepting deposits and lending to unserved and underserved sections including small business units, small and marginal farmers, micro and small industries, and entities in the unorganized sector, RBI said when it released guidelines for such banks in November.
Eight out of the 10 entities granted the in-principle approval, which is valid for 18 months, are microfinance institutions. The exceptions are Capital Local Area Bank Ltd, which operates in five districts of Punjab, and Au Financiers. Local-area banks are institutions that lend in contiguous districts, mobilizing rural savings and making them available for local investments. Au Financiers is a non-banking financial company.
For microfinance firms that give tiny loans to low-income earners, the key incentive for converting into small finance banks will be the access they gain to deposits; they will also be able to offer a wider range of loan products to customers.
The licensing of small finance banks follows 11 payment bank licences given out by RBI last month to provide basic savings, and deposit, payment and remittance services to people without access to the formal banking system. Payments banks will not be in the business of lending.
Both initiatives are aimed at furthering financial inclusion, which the Bharatiya Janata Party-led National Democratic Alliance government has made one of its top priorities since it assumed office in May 2014.
It has launched the Pradhan Mantri Jan Dhan Yojana (PMJDY) to ensure a bank account for every household, offering accidental insurance cover of Rs.1 lakh, life insurance cover of Rs.30,000 and easy transfer of money across India as sweeteners. As of 12 August, 175.7 million bank accounts had been opened under the scheme, according to the PMJDY website.
In a statement released on Wednesday, RBI said it had selected the 10 candidates to start small finance banks after three different committees conducted a detailed case study of each applicant.
“Going forward, the Reserve Bank intends to use the learning from this licensing round to appropriately revise the guidelines and move to giving licences more regularly, that is, virtually ‘on tap.”’
After setting up a bank, it would take nearly two years to merely stabilize the operation, said Samit Ghosh, founder and managing director, Ujjivan Financial Services. Ujjivan’s loan book stands at about Rs.3,300 crore and it plans to continue its focus on smaller borrowers, he said.
“The next 18 months are going to be a lot of hard work. We have to figure out ways to bring down the 90% foreign shareholding in the company since RBI has strict guidelines for it. We will be looking at various options including private placements,” said Ghosh.
According to the current policy, the aggregate foreign investment in a private sector bank from all sources is capped at 74% of its paid-up capital.
Ahmedabad-based Disha Microfin said its focus will be to expand in the central and western Indian states where there is a huge base of unbanked customers.
“The initial challenge will be to restructure and transform into a bank from a non-banking financial institution and offer multiple banking products,” said Rajeev Yadav, director of Disha group, which runs the Ahmedabad-based microfinance company.
In total, 72 entities applied for a small finance bank licence. The applications were reviewed by a committee headed by former RBI deputy governor Usha Thorat.
“It is clear from the list (of licensees) that the RBI’s bias is towards people who have proved themselves in the priority lending space. Since larger banks have always felt it to be a drag on their books, these entities will be able to fill that gap and serve smaller customers,” said Abizer Diwanji, partner and national leader, financial services, EY.
According to Diwanji, the ability to maintain a full-fledged treasury department would be one of the advantages of turning into a small finance bank, apart from access to deposits and the opportunity to offer a wider range of loan products.
“But these will also be the biggest challenges, since these are players who have not had much experience in these services,” Diwanji said.
To be sure, the transformation will not be easy.
“For the initial few years, lives are going to be difficult for the licensees. Some extremely large challenges include the ability to form a sustainable business model and gaining trust from the depositors. However, this sector is capable of achieving these things,” said Alok Prasad, industry expert and former chief executive officer of Microfinance Institutions Network, an industry body for microlenders.
One challenge will be the prudential norms they have to adhere to.
Small finance banks will be subject to most of the prudential norms that scheduled commercial banks have to adhere to. For instance, they need to maintain a cash reserve ratio (CRR), or portion of deposits to be set aside with the central bank, and statutory liquidity ratio (SLR), or the portion of deposits to be invested in government securities, as stipulated for commercial banks.
Seventy-five percent of the credit advanced by small finance banks will need to go to sectors that are considered part of the so-called priority sector, which includes agriculture, small enterprises and low-income earners. Commercial banks have to mandatorily lend 40% of their net bank credit to such sectors.
Small finance banks will also have to ensure that 50% of their loan portfolio constitutes advances of up to Rs.25 lakh, said RBI.
Such banks can eventually apply to RBI to transit into universal banks once they have established a satisfactory track record. Such a transition would be subject to due diligence by the banking regulator.
The minimum paid-up equity capital for small finance banks was set at Rs.100 crore and the minimum initial contribution from promoters fixed at 40%.
Wednesday, September 16, 2015
CLP Wind Farms to issue Rs 600 cr in green bonds
New Delhi: CLP India, one of the largest foreign investors in the Indian power sector, today announced the issuance of corporate Green Bonds for its wind portfolio - CLP Wind Farms. CLP Wind Farms will raise Rs 600 crore through issue of rated, secured, unlisted, redeemable non-convertible debentures.
CLP is the largest wind power developer in India with committed wind projects of more than 1,000 MW, spread across six states. The proceeds from these bonds will be used for funding the capital expenditure of its projects in the renewable space. CLP Wind Farms is the first mover to issue Corporate Green Bonds in the Indian power sector. This move will help CLP sustain its expansion of the renewable energy portfolio in alignment with the company's vision to lower carbon emission footprint.
India Ratings and Research Private Limited has assigned a rating of AA to the bonds. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations and very low credit risk. The bonds, with a coupon of 9.15 per cent per annum being issued in three series of equal amounts, will mature every April in 2018, 2019 and 2020. Standard Chartered Bank, IDFC Limited and The Hongkong and Shanghai Banking Corporation Limited are the lead arrangers for the bond issuance.
Rajiv Mishra, Managing Director, CLP India, said, "Through the issuance of these bonds we plan to fund the expenditure of new projects in the renewable energy space and thereby support CLP's growth plans for India. There is enormous potential in the Indian renewable power market and we see ourselves making a vital contribution towards the government's objective of increasing capacities in clean energy."
Samir Ashta, Director - Finance and Chief Financial Officer, CLP India, said, "We were the first to introduce asset specific bonds in the Indian power sector for our Jhajjar power plant earlier this year. The issuance of the Corporate Green Bonds by CLP Wind Farms has set a benchmark for re-financing of power projects, post commissioning. At CLP India, we always think of innovative financial structures to improve the overall project viability."
Speaking to Business Standard, Ashta said the company has a varied debt portfolio which includes bank loans, external commercial borrowings and bonds. Unlike loans where the interest cost is revised, bonds have an advantage of fixed rate of interest, he said.
According to him, the structure of these bonds achieves the twin objectives of accessing long term funds at competitive rates and an attractive long term investment opportunity for the investors. It is also beneficial from the company's perspective to keep its interest cost in check as the interest outgo towards repayment remains fixed and is not variable as in the case of bank borrowing. "
Green bonds enable capital-raising and investment for projects with environmental benefits. These could include projects related to renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management, climate change adaptation, among others.
CLP is the largest wind power developer in India with committed wind projects of more than 1,000 MW, spread across six states. The proceeds from these bonds will be used for funding the capital expenditure of its projects in the renewable space. CLP Wind Farms is the first mover to issue Corporate Green Bonds in the Indian power sector. This move will help CLP sustain its expansion of the renewable energy portfolio in alignment with the company's vision to lower carbon emission footprint.
India Ratings and Research Private Limited has assigned a rating of AA to the bonds. Instruments with this rating are considered to have high degree of safety regarding timely servicing of financial obligations and very low credit risk. The bonds, with a coupon of 9.15 per cent per annum being issued in three series of equal amounts, will mature every April in 2018, 2019 and 2020. Standard Chartered Bank, IDFC Limited and The Hongkong and Shanghai Banking Corporation Limited are the lead arrangers for the bond issuance.
Rajiv Mishra, Managing Director, CLP India, said, "Through the issuance of these bonds we plan to fund the expenditure of new projects in the renewable energy space and thereby support CLP's growth plans for India. There is enormous potential in the Indian renewable power market and we see ourselves making a vital contribution towards the government's objective of increasing capacities in clean energy."
Samir Ashta, Director - Finance and Chief Financial Officer, CLP India, said, "We were the first to introduce asset specific bonds in the Indian power sector for our Jhajjar power plant earlier this year. The issuance of the Corporate Green Bonds by CLP Wind Farms has set a benchmark for re-financing of power projects, post commissioning. At CLP India, we always think of innovative financial structures to improve the overall project viability."
Speaking to Business Standard, Ashta said the company has a varied debt portfolio which includes bank loans, external commercial borrowings and bonds. Unlike loans where the interest cost is revised, bonds have an advantage of fixed rate of interest, he said.
According to him, the structure of these bonds achieves the twin objectives of accessing long term funds at competitive rates and an attractive long term investment opportunity for the investors. It is also beneficial from the company's perspective to keep its interest cost in check as the interest outgo towards repayment remains fixed and is not variable as in the case of bank borrowing. "
Green bonds enable capital-raising and investment for projects with environmental benefits. These could include projects related to renewable energy, energy efficiency, sustainable waste management, sustainable land use, biodiversity conservation, clean transportation, sustainable water management, climate change adaptation, among others.
Cellphone makers to set up manufacturing hub in Andhra
New Delhi: Three domestic mobile device makers—Micromax Informatics Ltd, Karbonn Mobile India Pvt. Ltd and Celkon Impex Pvt. Ltd—are coming together to set up the country’s first mobile phone manufacturing hub at Tirupati in southern Andhra Pradesh, giving a fillip to the Union government’s Make in India initiative.
The coming together of the three handset makers at a single place is expected to trigger the creation of a mobile device ecosystem as component manufacturers set up shop in the country. Most phone makers now assemble phones using components imported from China and Southeast Asian countries.
Prime Minister Narendra Modi’s government is encouraging electronic hardware companies to manufacture locally in an attempt to reduce the country’s electronics import bill.
In an attempt to create an ecosystem for electronic devices in the state, the Andhra Pradesh government has agreed to give value-added tax (VAT) exemption to component makers for 10 years. This is in addition to the 10-year VAT exemption promised to the three firms.
“Manufacturers, if they come one by one, there will be an ecosystem,” chief minister N. Chandrababu Naidu said in Vijayawada prior to signing in-principle agreements with the three firms. “We want to create this ecosystem. If you create the ecosystem, India will move very fast,” he added.
Celkon, the fifth biggest phone maker in the country, will initially work on semi-knocked down (SKD) mobile units by importing components from China, but over time expects to work on completely knocked down mobile units using components made domestically.
Y. Guru, chairman of Hyderabad-based Celkon, said his company is in the process of signing joint venture agreements with Chinese firms to make components locally. Rajesh Agarwal, co-founder of Micromax, said his firm would make products from its entire portfolio—mobile devices, tablets, LED televisions and computer monitors—at the Tirupati facility.
The state government has set aside 60 acres of land near Tirupati airport for the three units. It has identified additional land near the airport to accommodate units of other handset and component makers, Kartikeya Misra, director of industries, Andhra Pradesh, said. The state government is talking to other handset makers such as Intex Technologies (India) Ltd and Lava International Ltd to set up a base in the state, he said.
The three domestic phone makers will be located not far from an assembly unit of Foxconn, which is making phones for Xiaomi Corp. at Sri City, also in Chittoor district.
Guru and Agarwal did not disclose the scale of investment or capacities at their proposed facilities, but Misra said the projects fall under the state’s mega projects category—meaning they entail an investment of more than Rs.200 crore or employ 1,500-2,000 people.
Guru said the company plans to invest Rs.250 crore over the next three years at Celkon’s Hyderabad and Tirupati facilities. Agarwal said Micromax would invest “whatever it takes” at the Tirupati facility.
“By virtue of our scale of operation, I am sure when we come here we will invest whatever it takes to be the best,” said Agarwal, promoter of India’s second biggest phone brand. Micromax currently operates units in Uttarakhand and is investing Rs.80 crore in a unit at Hyderabad.
In addition to the VAT exemption, the Andhra Pradesh government is giving a logistics cost subsidy, and a 5% investment subsidy for the three handset makers. The facilities will be located about 120km from the Chennai airport.
“From what I have heard they got a very sweet deal with the government. This could very well be the start of something new,” said Sanchit Vir Gogia, chief analyst and group CEO, Greyhound Research,
“This kind of coming together is a very difficult task for a lot of organizations. When such big brands come together, second degree and third degree suppliers will start coming together because they will realize ultimately that manufacturing lines are the same,” he added.
The coming together of the three handset makers at a single place is expected to trigger the creation of a mobile device ecosystem as component manufacturers set up shop in the country. Most phone makers now assemble phones using components imported from China and Southeast Asian countries.
Prime Minister Narendra Modi’s government is encouraging electronic hardware companies to manufacture locally in an attempt to reduce the country’s electronics import bill.
In an attempt to create an ecosystem for electronic devices in the state, the Andhra Pradesh government has agreed to give value-added tax (VAT) exemption to component makers for 10 years. This is in addition to the 10-year VAT exemption promised to the three firms.
“Manufacturers, if they come one by one, there will be an ecosystem,” chief minister N. Chandrababu Naidu said in Vijayawada prior to signing in-principle agreements with the three firms. “We want to create this ecosystem. If you create the ecosystem, India will move very fast,” he added.
Celkon, the fifth biggest phone maker in the country, will initially work on semi-knocked down (SKD) mobile units by importing components from China, but over time expects to work on completely knocked down mobile units using components made domestically.
Y. Guru, chairman of Hyderabad-based Celkon, said his company is in the process of signing joint venture agreements with Chinese firms to make components locally. Rajesh Agarwal, co-founder of Micromax, said his firm would make products from its entire portfolio—mobile devices, tablets, LED televisions and computer monitors—at the Tirupati facility.
The state government has set aside 60 acres of land near Tirupati airport for the three units. It has identified additional land near the airport to accommodate units of other handset and component makers, Kartikeya Misra, director of industries, Andhra Pradesh, said. The state government is talking to other handset makers such as Intex Technologies (India) Ltd and Lava International Ltd to set up a base in the state, he said.
The three domestic phone makers will be located not far from an assembly unit of Foxconn, which is making phones for Xiaomi Corp. at Sri City, also in Chittoor district.
Guru and Agarwal did not disclose the scale of investment or capacities at their proposed facilities, but Misra said the projects fall under the state’s mega projects category—meaning they entail an investment of more than Rs.200 crore or employ 1,500-2,000 people.
Guru said the company plans to invest Rs.250 crore over the next three years at Celkon’s Hyderabad and Tirupati facilities. Agarwal said Micromax would invest “whatever it takes” at the Tirupati facility.
“By virtue of our scale of operation, I am sure when we come here we will invest whatever it takes to be the best,” said Agarwal, promoter of India’s second biggest phone brand. Micromax currently operates units in Uttarakhand and is investing Rs.80 crore in a unit at Hyderabad.
In addition to the VAT exemption, the Andhra Pradesh government is giving a logistics cost subsidy, and a 5% investment subsidy for the three handset makers. The facilities will be located about 120km from the Chennai airport.
“From what I have heard they got a very sweet deal with the government. This could very well be the start of something new,” said Sanchit Vir Gogia, chief analyst and group CEO, Greyhound Research,
“This kind of coming together is a very difficult task for a lot of organizations. When such big brands come together, second degree and third degree suppliers will start coming together because they will realize ultimately that manufacturing lines are the same,” he added.
India to get synthetic diamond detection centre next month
Mumbai: De Beers, the premier supplier of rough diamonds to the world, plans to set up a synthetic diamond detection centre in India next month. It has been a request from Indian processing companies. It might install the machines either in Surat or at Bharat Diamond Bourse (BDB), here. In March, it had set up a grading and inscription facility in Surat, at an investment of Rs 60 crore. There are a few synthetic diamond detecting machines at BDB but none are available to identify synthetic diamonds in ornaments. The BDB machines have a long waiting list for testing.
“We will launch a new low-cost, high-volume synthetic melee screening and referrals testing service in India in October,” said Jonathan Kendall, president of International Institute of Diamond Grading & Research, part of De Beers.
Adding: “We have renowned expertise in the application of diamond technology and India is the world’s largest centre for diamond cutting and polishing. Launching (this) service in India for screening synthetic melee and testing referrals will support both trade and consumer confidence.”
“A lot of mixing of synthetic with natural diamonds is happening. The new detection centre would help the industry to segregate (these),” said Sanjay Kothari, a sector veteran.
In recent years, import of synthetic diamonds has increased from many places, including Singapore, Dubai and Hong Kong. The Gems and Jewellery Export Promotion Council (GJEPC) has urged the government to fix a separate HS Code (under which imported goods are identified). Currently, synthetic diamonds are imported under the natural diamond code.
GJEPC data show rough synthetic diamonds’ import was $86 million in 2013-14, a 21-times increase in 10 years from a mere $4 mn in 2004-05.
“We had requested global diamond miners, including De Beers and Alrosa, for setting up such machines in India. We had also urged Gemological Institute of America. It is good that De Beers has honoured our request. We believe others would follow,” said Sabyasachi Ray, executive director, GJEPC.
“We will launch a new low-cost, high-volume synthetic melee screening and referrals testing service in India in October,” said Jonathan Kendall, president of International Institute of Diamond Grading & Research, part of De Beers.
Adding: “We have renowned expertise in the application of diamond technology and India is the world’s largest centre for diamond cutting and polishing. Launching (this) service in India for screening synthetic melee and testing referrals will support both trade and consumer confidence.”
“A lot of mixing of synthetic with natural diamonds is happening. The new detection centre would help the industry to segregate (these),” said Sanjay Kothari, a sector veteran.
In recent years, import of synthetic diamonds has increased from many places, including Singapore, Dubai and Hong Kong. The Gems and Jewellery Export Promotion Council (GJEPC) has urged the government to fix a separate HS Code (under which imported goods are identified). Currently, synthetic diamonds are imported under the natural diamond code.
GJEPC data show rough synthetic diamonds’ import was $86 million in 2013-14, a 21-times increase in 10 years from a mere $4 mn in 2004-05.
“We had requested global diamond miners, including De Beers and Alrosa, for setting up such machines in India. We had also urged Gemological Institute of America. It is good that De Beers has honoured our request. We believe others would follow,” said Sabyasachi Ray, executive director, GJEPC.
Gujarat to bring APMCs on e-market platform
Ahmedabad: From November, farmers here will be able to check stocks and buy or sell produce to those in Unjha at the click of a button, with Gujarat putting in place an electronic market platform for its Agricultural Produce Market Committees (APMCs), under the National Agriculture Market (NAM) initiative.
Initially, 26 of the 210 APMCs will be connected to the e-market platform. These include the APMCs in Ahmedabad, Rajkot, Bhavnagar, Himmatnagar, Unjha, Surat, Dahod and Gondal.
“The total project cost is about Rs 21 crore. To secure financial assistance, we have given a proposal to the central government,” said Mona Khandhar, secretary of the agriculture and cooperation department, Gujarat.
The state government plans to develop two types of markets under the e-market platform — a real-time market and a virtual one. “The local real-time market will see trading of smaller lots by local traders on the e-platform wherein traders will have some time to study before bidding. The virtual market will allow traders with valid licences from anywhere to trade in larger lots. During trading, laboratory results can also be shared on the lots,” Khandhar said.
Currently, traders can participate only in a single APMC for physical trading, though they can participate in multiple markets with a single licence in the in e-market. Under the current e-market model, trading can also be carried out with other states, through a prior agreement.
Mohanbhai Kundariya, Union minister of state for agriculture, said, “Our aim is to put all APMCs under one platform so that farmers can get better prices for their products. The Union government will provide all kinds of financial support to develop an e-market platform.”
The Gujarat government aims to bring at least 100 APMCs under the e-market platform by the end of March 2016. For this, the central government has allotted Rs 200 crore.
The 26 APMCs to be connected to the e-market platform initially will have modern grading and packaging facilities. The state government also plans to set up a laboratory for quality checks.
“We have issued a tender to identify a commodity exchange to be our partner for the e-market platform. We are studying numbers of such markets,” Khandhar said.
The state government plans to conduct a seminar for farmers, traders and APMC officials to explain to them the concept of an e-market.
The NAM model has been adopted from Karnataka, which has had an e-market since the past couple of years. Gujarat, however, might be the first state to implement the project directly under NAM.
The Gujarat government is planning to set up 100 warehouses for agricultural produce, for which Rs 5 crore has already been allotted. “The state government has decided to give priority to e-market-linked APMCs to set up warehouses in the next year,” said J G Pandya, director of the Gujarat State Agricultural Marketing Board.
Initially, 26 of the 210 APMCs will be connected to the e-market platform. These include the APMCs in Ahmedabad, Rajkot, Bhavnagar, Himmatnagar, Unjha, Surat, Dahod and Gondal.
“The total project cost is about Rs 21 crore. To secure financial assistance, we have given a proposal to the central government,” said Mona Khandhar, secretary of the agriculture and cooperation department, Gujarat.
The state government plans to develop two types of markets under the e-market platform — a real-time market and a virtual one. “The local real-time market will see trading of smaller lots by local traders on the e-platform wherein traders will have some time to study before bidding. The virtual market will allow traders with valid licences from anywhere to trade in larger lots. During trading, laboratory results can also be shared on the lots,” Khandhar said.
Currently, traders can participate only in a single APMC for physical trading, though they can participate in multiple markets with a single licence in the in e-market. Under the current e-market model, trading can also be carried out with other states, through a prior agreement.
Mohanbhai Kundariya, Union minister of state for agriculture, said, “Our aim is to put all APMCs under one platform so that farmers can get better prices for their products. The Union government will provide all kinds of financial support to develop an e-market platform.”
The Gujarat government aims to bring at least 100 APMCs under the e-market platform by the end of March 2016. For this, the central government has allotted Rs 200 crore.
The 26 APMCs to be connected to the e-market platform initially will have modern grading and packaging facilities. The state government also plans to set up a laboratory for quality checks.
“We have issued a tender to identify a commodity exchange to be our partner for the e-market platform. We are studying numbers of such markets,” Khandhar said.
The state government plans to conduct a seminar for farmers, traders and APMC officials to explain to them the concept of an e-market.
The NAM model has been adopted from Karnataka, which has had an e-market since the past couple of years. Gujarat, however, might be the first state to implement the project directly under NAM.
The Gujarat government is planning to set up 100 warehouses for agricultural produce, for which Rs 5 crore has already been allotted. “The state government has decided to give priority to e-market-linked APMCs to set up warehouses in the next year,” said J G Pandya, director of the Gujarat State Agricultural Marketing Board.
Amendments to model concession agreement a big boost for highways sector: Crisil
Mumbai: India’s national highways sector received a big regulatory boost with the ministry of roads and highways clearing amendments to the model concession agreement (MCA) for awarding projects on a build-operate-transfer (BOT) basis, rating agency Crisil Ltd said in a report on Tuesday.
Under the MCA amendments, which were cleared last week, payment of premium starts only from the fourth year of completion of a project, compared with the first year previously. This is a major relief for both developers and lenders, said Crisil.
The amendment also allows termination of projects that do not progress even after a year of award. Almost half the projects awarded between 2011 and 2013 had to be terminated because of delays in land acquisition and other clearances. The termination process itself was complex and painful, taking more than two years in half the instances, said the report.
In BOT projects, a private developer builds the project with its own funds, operates it for a period and then transfers it to the government.
In August, the government approved a conditional bailout package to help so-called BOT road developers exit highway projects two years after completion of such projects, irrespective of the year when the project was awarded. The proceeds can be used to retire corporate debt or for investment in other road projects, said the Cabinet Committee on Economic Affairs.
Last month, the National Highways Authority of India (NHAI) also removed a clause which required companies to invest the money received from monetization of their operational assets. The body also offered to fund projects that are stuck in advanced stages of completion. The government is also working towards being better prepared with clearances before putting up projects for bidding.
These changes will improve the confidence of both developers and lenders in the sector, said the report.
“Lender confidence, which was severely damaged in the last few years, will revive with the change in the clause related to premium payment, and introduction of the clause on deemed termination. Further, doubling the cap on equity contribution by NHAI will make more projects viable at a time when a majority of BOT projects being awarded are on a grant basis,” said Crisil Research director Ajay Srinivasan.
Project awards by NHAI could increase nearly 50% in the current financial year with the share of BOT projects rising to 50% by 2017 from 25% a year earlier, Crisil said.
Under the MCA amendments, which were cleared last week, payment of premium starts only from the fourth year of completion of a project, compared with the first year previously. This is a major relief for both developers and lenders, said Crisil.
The amendment also allows termination of projects that do not progress even after a year of award. Almost half the projects awarded between 2011 and 2013 had to be terminated because of delays in land acquisition and other clearances. The termination process itself was complex and painful, taking more than two years in half the instances, said the report.
In BOT projects, a private developer builds the project with its own funds, operates it for a period and then transfers it to the government.
In August, the government approved a conditional bailout package to help so-called BOT road developers exit highway projects two years after completion of such projects, irrespective of the year when the project was awarded. The proceeds can be used to retire corporate debt or for investment in other road projects, said the Cabinet Committee on Economic Affairs.
Last month, the National Highways Authority of India (NHAI) also removed a clause which required companies to invest the money received from monetization of their operational assets. The body also offered to fund projects that are stuck in advanced stages of completion. The government is also working towards being better prepared with clearances before putting up projects for bidding.
These changes will improve the confidence of both developers and lenders in the sector, said the report.
“Lender confidence, which was severely damaged in the last few years, will revive with the change in the clause related to premium payment, and introduction of the clause on deemed termination. Further, doubling the cap on equity contribution by NHAI will make more projects viable at a time when a majority of BOT projects being awarded are on a grant basis,” said Crisil Research director Ajay Srinivasan.
Project awards by NHAI could increase nearly 50% in the current financial year with the share of BOT projects rising to 50% by 2017 from 25% a year earlier, Crisil said.
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