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TUESDAY, JULY 26, 2011, DELHI
son, an analyst at brokerage Religare Capital Markets plc. In the year ended 31 March, Suzlon’s loss accruing from its stake in Hansen was around `28 crore, according to an analyst presentation by the Indian company. “Hansen, which also supplies to Gamesa Corporación Tecnológica SA and Siemens AG, has been struggling because end market conditions have not been so conducive,” said Thompson. Suzlon, with a consolidated debt of `9,142 crore as of 31 March, has been reducing its stake in Hansen ever since it purchased the company in March 2006 for €465 million. Suzlon, currently the subject of a corporate debt restructuring programme drawn up by Indian lenders, reduced its stake to 71% in January 2008 when Hansen sold fresh shares to raise €440 million euros. Last year, British fund Ecofin Ltd. purchased 10% for `500 crore, further reducing Suzlon’s stake to 61%. “Suzlon acquired Hansen at a time when there was a deficit in the gearbox market,” said Bhargav Buddhadev, analyst at brokerage Ambit Capital Pvt. Ltd. “Most of the cash raised from Hansen’s stake sale may be used to reduce its debt as it does not require a lot of money to acquire the remaining stake in REpower.” Suzlon raised $175 million by selling foreign currency convertible bonds in April this year. It requires only around $85 million as per a company report for purchasing the 4.84% stake it doesn’t own in REpower, Buddhadev said. REpower is primarily an offshore wind turbine manufacturer in which Suzlon had acquired a 33.85% stake in May 2007 and has progressively increased its stake to 95.16%.
BoI, OBC profits drop on higher provisioning
B Y A NUP R OY & R EMYA N AIR ························
Raising funds: Suzlon group founder and chairman Tulsi Tanti.
$187 MILLION DEAL
Suzlon in talks to sell 26.06% stake in Hansen
Move will improve Suzlon’s balance sheet and help it purchase the shares it doesn’t own in REpower
B Y H ARINI S UBRAMANI
uzlon Energy Ltd said on Monday that it has signed an undertaking with ZF Friedrichshafen AG, a German automotive component maker, to sell its remaining 26.06% stake in gearbox making Netherlands subsidiary Hansen Transmissions International BV for $187 million (`830 crore) in cash.
The move will make Suzlon’s balance sheet look better, help the company reduce debt and purchase the shares it doesn’t own in German industrial wind turbine maker REpower Systems AG, analysts said. ZF, a €12.9 billion company, which makes drivelines and gearboxes, purchased the stake from AE-Rotor Holding BV, The Netherlands, a wholly owned unit of Suzlon. The company will pay 66 pence a share for the stake. “This is in line with our strategy to optimize and strengthen our balance sheet,” said Suzlon group founder and chairman Tulsi Tanti in a press release. The agreement can be revoked if a third party bids at
least 12.5% more or if current investors, Ecofin Water and Power Opportunities Plc and Ecofin Special Situations Utilities Master Fund Ltd, offer at least 10% more than ZF, Suzlon told the Bombay Stock Exchange (BSE). Ecofin owns a 12.27% stake in the company. Suzlon rose 3.02% to `54.5 on Monday on the BSE, while the benchmark Sensex rose 0.8%. Hansen was trading at 65 pence, up 91% from Friday’s close of 33.75 pence, on the London Stock Exchange at 9.30 pm IST. “With the stake sale, Suzlon is not worse off from a supply chain perspective but better off from a balance sheet perspective,” said Mark Thomp-
Rising prices may hit imports of diammonium phosphate
B Y A MAN M ALIK
ndian fertilizer companies may not import as much diammonium phosphate (DAP) as they usually do every year because prices of the chemical are rising on greater global demand. India imports a majority of its requirement of DAP, the second-largest selling fertilizer in the country after urea, either in finished form or as phosphoric acid, an intermediate. India’s contracting price is a function of the subsidy that the government extends on fertilizers. The subsidy on DAP currently translates to a benchmarked price of $612 (`27,173) per tonne. Industry executives and government officials say the international price of DAP is likely to cross $660 per tonne by October, which is when Indian companies usually begin contracting for purchases in the following fiscal year. Contracts are either long term or on the international spot market. “The international price of phosphoric acid has gone up from $980 per tonne a few months back to $1,050 per tonne,” an executive with Chambal Fertilisers and Chemicals Ltd said on condition of anonymity. “This would mean that the price of DAP would
Cost factor: A file photo of a farmer using fertilizer in his field. touch $660 per tonne by October.” Price increases in the international market have already had an impact this year. Industry and government officials say that since October 2010, Indian companies have contracted only 4.6 million tonnes of DAP, as against 6.5 million tonnes between October 2009 and October 2010, a decrease of nearly 30%. India usually imports about 8 million tonnes of DAP from Morocco, Jordan, China and other exporters, and through international groupings such as the Phosphate Chemicals Export Association, Inc. (PhosChem). The total annual domestic demand is about 11-12 million tonnes. Nearly all the contracting has been done by non-government entities such as the Indian Farmers Fertiliser Co-operative Ltd (Iffco), Indian Potash Ltd, Zuari Industries Ltd, Chambal Fertilisers and Chemicals Ltd and Coromandel International Ltd. An Iffco official said the cooperative, along with Indian Potash, in which it has a substantial stake, had contracted for 1.5 million tonnes of DAP against the targeted 2 million tonnes. Chambal and Zuari have together contracted 0.7 million tonne thus far, the Chambal executive said. State-owned fertilizer companies, which normally account for 10-15% of DAP im-
ports, have thus far not contracted any significant amounts. Fertilizer ministry officials said that state-run companies such as National Fertilizers Ltd (NFL) and Rashtriya Chemicals and Fertilizers Ltd (RCF) have contracted little or no DAP this year. Although both NFL and RCF have floated tenders for contracting DAP, there has been no significant response thus far, they said. “Private companies can contract aggressively, as they do not have to go via a tendering process unlike public sector units that have to follow government norms,” said a fertilizer ministry official. The international spot price for DAP is currently $630-640, said Tarun Surana, an analyst with Mumbai-based Sunidhi Securities and Finance Ltd. “Global demand has been rising in the last few years. Moreover, the recent political disturbances in the Middle East and north Africa have led to disruptions in the supply of DAP and phosphoric acid,” he said. The government official cited above, however, said the government was unlikely to raise the subsidy on DAP. Since the fertilizer comes under the decontrolled nutrient based subsidy regime, companies should increase the maximum retail price, passing it on to farmers, he said. In April, the government had, however, asked companies not to raise the price of the fertilizer by more than `600 per tonne from the then prevailing maximum retail price of `10,750 per tonne. On 8 July, the government removed this restriction as international prices were still rising. It had then asked companies to keep rates at a “reasonable level”.
ising bad debts have pulled down the June quarter earnings of two of the three public sector banks, including Bank of India (BoI), which announced results on Monday. They posted far less profits than what analysts expected of them. BoI, the fourth largest public sector bank by assets, reported a 28.55% dip in net profit as its provisioning for bad debts jumped 47% to `567.22 crore to cover bad debts which rose to `5,791.01 crore from `4,794.52 crore. Net profit of Delhi-based Oriental Bank of Commerce (OBC) fell 2.37% to `354.70 crore from `363.32 crore in the year-ago period, dragged down by higher provisioning and a fall in net interest income (NII). However, Bank of Maharashtra posted a 3.07% rise in net profit at `122.04 crore for the quarter against a net profit of `118.4 crore in the corresponding quarter last fiscal. The rise in BoI’s bad debts is triggered by the banks’ move to systemsaided recognition of bad debts, or non-performing assets (NPAs), instead of doing it manually, which has been the case so far for many banks. Banks are to move their entire NPA recognition task to the core banking software by September in accordance with the directive of the government, the majority owner of these banks. This, according to many banks, will throw up negative surprises in the next quarter also. BoI’s profitability was also hit by reversal of interest of `175 crore, booked earlier as income from good accounts. These accounts have turned bad. The bank has fed 90% of its accounts in the system and the rest will be moved to systemsbased recognition during the current quarter. Its chairman and managing director Alok Misra said after September quarter that there will be no negative surprise on the NPA front. Even after setting aside money, the bank’s net NPA ratio rose to 1.27% from 1.18% in the year-ago quarter. The bank did not fare good in its core operation either. Its net interest margin (NIM), a key profitability parameter, fell to 2.19% from 2.89% a year ago as cost of deposits rose. Yields on advances rose marginally but not in the same way as deposit costs rose. The bank management expects an increase of 20-25 basis points (bps) in NIM in the coming quarters. One basis point is one-hundredth of a percentage point. NII, or interest earned minus interest expended, rose 5.77% to `1,840.96 crore. The bank blamed the subdued
Bank of India’s profitability was also hit by a reversal of interest of `175 crore, booked earlier as income from good accounts
credit demand for this. “Interest rate in the economy is high and several accounts, particularly those of small and medium enterprises, have been going for restructuring. High cost is also tapering of credit demand,” Misra said. The bank has revised its credit growth target to 20% from 21-22% earlier and deposit growth target to 17% from 20-21%. OBC reported an NII of `1,018 crore in the quarter, compared with `1,057 crore in the year-ago period. Nagesh Pydah, chairman of the bank, attributed the fall in NII mainly to the higher cost of funds, which impacted the bank’s NIM also. The bank reported an NIM of 2.94% in the quarter, against 3.34% in the year-ago period. While cost of deposits increased sharply to 7.19% in the quarter (5.61% in the corresponding year-ago period), yield on advances increased to 11.38% (compared with 10.03% in the corresponding year-ago period). “There was a sharp increase in bulk deposits in the last quarter of 2010-11. However, we are repricing our deposits,” Pydah said. The bank also had to make higher provisions for bad debts and restructured advances, which impacted the bottom line. The bank made a provision of `72 crore for bad debts and `62 crore for restructured accounts. Net NPAs increased to 1.09% in the quarter from 0.72% a year ago. While the bank posted a deposit growth of more than 17%, credit growth was only 14% in the quarter. “From August, credit offtake from agriculture should see an increase. We are targeting a 20% growth in credit for the full year,” Pydah said. Despite the pressure on margins, the bank is confident of maintaining an NIM of 3% for the current fiscal. “Sequentially, the yields on advances are growing more than the cost of funds. We should be able to protect our margins,” he said. The total income of Bank of Maharashtra increased by 28.6% at `1,817.6 crore compared with `1,412.9 crore during the year-ago period. Total interest income of the bank rose to `1,644.1 crore from `1,280.21 crore. OBC shares gained 6.77% to close at `374.65 on Monday on the Bombay Stock Exchange while Bank of Maharashtra’s stock, too, rose 1.46% to close at `55.75. Bank of India, however, lost 2.88% to close at `403.50. The Bankex, the bourse’s banking index, gained 0.82%, and the Sensex, the benchmark index, gained 0.8%. firstname.lastname@example.org PTI contributed to this story.
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