Today's top business news: Shares rise, Supreme Court bars banks from charging compound or penal interest, Sebi eases valuation norms for perpetual bonds on FinMin push, and more

A view of the Bombay Stock Exchange building in Mumbai. File  

The Nifty and the Sensex opened the day on a  positive note after yesterday's volatile trading that ended with marginal losses.

Join us as we follow the top business news through the day.

4:30 PM

Relaxed valuation rule for perpetual bonds to help in avoiding panic redemption: Experts

The likely consequence of Sebi's rule change.

PTI reports: "Easing of valuation rule for perpetual bonds by Sebi will provide a breather to the mutual fund industry, which has an exposure of over Rs 35,000 crore to such instruments, as they get time to redeem their positions, industry experts said on Tuesday.

They further said there will be no panic redemption in these bonds with this temporary relief.

However, experts differ on views whether the move will help banks, which raise capital through such bond issuances.

In a late evening circular on Monday, the Securities and Exchange Board of India (Sebi) eased valuation rule pertaining to perpetual bonds.

The move came after the finance ministry had asked Sebi to withdraw its directive to mutual fund houses to treat additional tier-1 (AT-1) bonds as having maturity of 100 years as it could disrupt the market and impact capital raising by banks.

AT-1 bonds are considered perpetual in nature, similar to equity shares as per the Basel-III guidelines. They form part of the tier-I capital of banks.

Under the new rule, the deemed residual maturity of Basel-III additional tier-1 (AT-1) bonds will be 10 years until March 31, 2022, and would be increased to 20 and 30 years over the subsequent six-month period.

From April 2023 onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bonds.

Green Portfolio co-founder Divam Sharma said the new framework will provide some relief to mutual funds as they get time to redeem their positions, which are generally not liquid. There will be no panic redemption in these bonds with this temporary relief.

For banks, this latest circular does not provide much relief as they are likely to find it difficult to get investors for their AT-1 bonds, he added.

"There is no change/deferment in the imposition of the 10 per cent capping of ownership of bonds in a particular mutual fund, which might have an immediate impact on the bond yields," he added.

Gopal Kavalireddi, head of research at FYERS, said the move would provide a breather to the mutual fund AMCs, which already have a total exposure of Rs 35,000 crore, and also provide relief to banks which raise capital through such bond issuances.

Omkeshwar Singh, head (RankMF) at Samco Group, the deem maturity has been changed in phased manner for valuation of perpetual bonds exiting by Sebi.

Effective from April 1, 2023, onwards, the deemed maturity to be considered 100 years and in between, it will be 10, 20 and 30 years in three phases till March 31, 2022, September 30, 2022, and March 31, 2023, respectively.

"These two years in between will provide sufficient time for funds to align there investments into AT-1 bonds (perpetual) , and the sudden shock in net asset value (NAV) can be avoided in the schemes that have exposure to these bonds," Singh noted.

Harshad Chetanwala, co-founder of MyWealthGrowth.com, said the recent amendments in valuation rule of perpetual bonds will still have an impact on the overall duration of the debt fund portfolios and will increase their sensitivity to interest rate changes.

"Longer the duration, higher will be the sensitivity to interest rate changes. The revaluation could impact the portfolio's value and reduce the NAVs of the mutual fund scheme holding these instruments in their portfolio," he added.

As per Sebi, deemed residual maturity of Basel-III Tier-2 bonds would be considered 10 years or contractual maturity, whichever is earlier, until March 2022. After that, it will be in accordance with the contractual maturity.

Further, if the issuer does not exercise call option for any bond then the valuation will be done considering maturity of 100 years from the date of issuance for AT-1 bonds and contractual maturity for Tier-2 bonds, for all bonds of the issuer, Sebi said.

In addition, if the non-exercise of call option is due to the financial stress of the issuer or if there is any adverse news, the same need to  be reflected in the valuation, it added.

The regulator has taken the decision based on the representation of the mutual fund industry to consider a glide path for implementation of the policy and request of other stakeholder.

Earlier this month, Sebi came out with a new framework that capped debt mutual fund exposure to perpetual bonds, which include AT-1 bonds and Tier-2 bonds.

It had also said that the maturity of all perpetual bonds should be treated as 100 years from the date of issuance for the purpose of valuation. The framework was to come into effect from April 1, 2021.

Mutual funds are one of the largest investors in perpetual debt instruments and currently hold more than Rs 35,000 crore of outstanding AT-1 issuances of about Rs 90,000 crore."

4:00 PM

Sensex ends 280 points higher; Nifty tops 14,800

A strong recovery from stocks.

PTI reports: "Equity benchmark Sensex jumped 280 points on Tuesday following gains in index majors HDFC Bank, ICICI Bank and Reliance Industries despite a weak trend in global markets.

The 30-share BSE index ended 280.15 points or 0.56 per cent higher at 50,051.44. The broader NSE Nifty advanced 78.35 points or 0.53 per cent to 14,814.75.

UltraTech Cement was the top gainer in the Sensex pack, rising around 3 per cent, followed by IndusInd Bank, ICICI Bank, HDFC Bank, Titan, Axis Bank, SBI and Maruti.

On the other hand, ONGC, PowerGrid, ITC, NTPC, M&M and HDFC were among the laggards.

Domestic equities rebounded sharply despite weak global cues mainly supported by sharp recovery in financial stocks, said Binod Modi, Head - Strategy at Reliance Securities.

"The Supreme Court pronounced that waiver of compound interest during loan moratorium should be for all. While there is still ambiguity about who will be bearing the additional burden, the comfort about the possible end of uncertainty about banks' NPAs led bank stocks to see sharp up-move," he noted.

Elsewhere in Asia, bourses in Shanghai, Hong Kong, Tokyo and Seoul ended on a negative note. Stock exchanges in Europe were also trading with losses in mid-session deals.

Meanwhile, the global oil benchmark Brent crude was trading 3.53 per cent lower at USD 62.34 per barrel."

3:30 PM

Gas price for ONGC to inch up to $1.82, fall below $4 for Reliance-BP

Changes to gas pricing.

PTI reports: "Government-dictated price for natural gas produced by companies such as ONGC is likely to inch up marginally to USD 1.82 next week while the same for difficult fields like one operated by Reliance-BP may fall below USD 4, sources said.

The price of gas, which is used to generate electricity, make fertiliser and convert into CNG for automobiles and cooking gas for households, is due to bi-annual revision next week.

The rates paid for gas produced from fields given to Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) are most likely to go up to USD 1.82 per million British thermal unit for six month period beginning April 1 from a decade low of USD 1.79 currently, two people aware of the matter said.

Simultaneously, the price for gas produced from difficult fields such as deepsea, which is based on a different formula, is likely to fall below USD 4 per mmBtu from the current price of USD 4.06.

This is the maximum price that Reliance Industries Ltd and its partner BP plc are entitled to for gas they produced from deepsea blocks they won under New Exploration Licensing Policy (NELP).

While the government sets the price of gas produced by ONGC from fields given to it on a nomination basis, it bi-annually announces a cap or maximum price that operators who won exploration acreage under NELP can get.

The operators are supposed to do a market price discovery by seeking bids from users but that rate is subject to the price ceiling announced by the government, they said.

Reliance-BP had in recent price discovery for new gas from their Krishna Godavari basin block, got rates of over USD 6 per mmBtu but they would get less than USD 4 as per the pricing formula.

Natural gas price is set every six months -- on April 1 and October 1 -- each year based on rates prevalent in surplus nations such as the US, Canada and Russia.

At the last revision, the price was cut by 25 per cent to USD 1.79 per mmBtu for six months beginning October 1 from USD 2.39. This is the third straight reduction in rate in one year. The price was cut by a steep 26 per cent to USD 2.39 in April last year.

The rate paid to producers of new gas from difficult fields such as deepsea was cut to USD 4.06 per mmBtu from USD 5.61.

The rate from October 1 is equivalent to the price paid to ONGC and Oil India Ltd (OIL) prior to May 2020 when formula-based pricing was first introduced.

ONGC, sources said, had posted Rs 4,272 crore loss on gas business in 2017-18, which is likely to widen to over Rs 6,000 crore in the current fiscal (April 2020 to March 2021), they said.

ONGC has seen incurring losses on the 65 million standard cubic meters per day of gas it produces from domestic fields shortly after the government in November 2014 introduced a new gas pricing formula that had "inherent limitations" as it was based on pricing hubs of gas surplus countries such as the US, Canada, and Russia.

Sources said ONGC in a recent communique to the government has stated that the break-even price to produce gas from new discoveries was in the range of USD 5-9 per mmBtu.

In May 2010, the government had raised the rate of gas sold to power and fertiliser firms from USD 1.79 per mmBtu to USD 4.20. ONGC and OIL got USD 3.818 per mmBtu price for the gas they produced from fields given to them on a nomination basis and after adding a 10 per cent royalty, the fuel cost USD 4.20 per mmBtu for consumers.

The Congress-led UPA had approved a new pricing formula for implementation in 2014 that would have raised the rates but the BJP-led government scrapped it and brought a new formula.

The new formula takes into account the volume-weighted annual average of the prices prevailing in Henry Hub (US), National Balancing Point (the UK), Alberta (Canada), and Russia with a lag of one-quarter. Prices are set every six months — on April 1 and October 1 each year.

The rate at the first revision, using the new formula, came to USD 5.05 but in the subsequent six-monthly reviews kept falling till it touched USD 2.48 for April 2017 to September 2017 period.

Subsequently, it rose to USD 3.69 in April 2019-September 2019 before being cut by 12.5 per cent in October 2019 to USD 3.23."

3:00 PM

Telegram’s new Clubhouse-like audio chatting feature

Messaging app Telegram has added a Clubhouse-like audio-only chatting feature to its app, only days after micro-blogging platform Twitter confirmed the rollout of Spaces.

The Dubai-based app added a twist to the voice chat feature it rolled out in December last year, allowing users to participate in live audio conversations in Telegram channels, according to a company statement.

Channel admins and public groups can now host conversations for millions of live listeners, synonymous to a “public radio reinvented for the 21st century”, Telegram added.

The move comes as several social networking companies strive to build their own versions of Clubhouse, an app that has become popular lately. It has gained over 8 million downloads worldwide since its launch in April 2020, according to app analytics firm App Annie. The presence of Tesla CEO Elon Musk and Facebook founder Mark Zuckerberg on the app has helped it gain 2.6 million downloads in the U.S. alone.

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2:00 PM

Loan moratorium case | Supreme Court bars banks from charging compound, penal interest

The Supreme Court on Tuesday stopped banks from charging compound interest (interest on interest) or penal interest on any loan, irrespective of the amount, during the moratorium period.

A three-judge Bench of Justices Ashok Bhushan, Subhash Reddy and M.R. Shah said the amount taken as compound interest or penal interest should be adjusted with future loan payments.

However, the court agreed with the Reserve Bank of India (RBI) that extending the date of the loan moratorium was “not viable”.

The court said judicial review over fiscal policies was limited and that it could not order specific financial reliefs. It questioned the rationale for limiting compound interest waiver to loans up to only ₹2 crore.

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1:30 PM

Sebi eases valuation norms for perpetual bonds on FinMin push

Sebi yields to the Centre's demand.

PTI reports: "Capital market regulator Sebi has eased valuation rule pertaining to perpetual bonds.

The move comes after the finance ministry asked Securities and Exchange Board of India (Sebi) to withdraw its directive to mutual fund houses to treat additional tier-I (AT-1) bonds as having maturity of 100 years as it could disrupt the market and impact capital-raising by banks.

In a late evening circular on Monday, Sebi said the deemed residual maturity of Basel III AT-1 bonds will be 10 years until 31 March, 2022, and would be increased to 20 and 30 years over the subsequent six-month period.

From April 1, 2023, onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bonds.

In addition, Sebi said that deemed residual maturity of Basel III Tier 2 bonds would be considered 10 years or contractual maturity, whichever is earlier, until March 2022. After that, it will be in accordance with the contractual maturity.

AT-1 bonds are considered perpetual in nature, similar to equity shares as per the Basel III guidelines. They form part of the tier-I capital of banks.

Further, if the issuer does not exercise call option for any bond then the valuation will be done considering maturity of 100 years from the date of issuance for AT-1 bonds and contractual maturity for tier-2 bonds, for all bonds of the issuer, Sebi said.

In addition, if the non-exercise of call option is due to the financial stress of the issuer or if there is any adverse news, the same need to be reflected in the valuation, it added.

Based on the representation of the mutual fund industry to consider a glide path for implementation of the policy and request of other stakeholder, Sebi said it has taken the decision.

Further, mutual fund industry body AMFI has been advised to issue detailed guidelines with respect to valuation of bonds issued under Basel III framework, which shall be implemented by April 1, 2021.

Earlier this month, Sebi came out with a new framework that capped debt mutual fund exposure to perpetual bonds, which include AT-1 bonds and tier-2 bonds.

It had also said that the maturity of all perpetual bonds should be treated as 100 years from the date of issuance for the purpose of valuation. The framework was to come into effect from April 1, 2021."

1:00 PM

Adani Ports shares climb nearly 5%

Market reaction to Adani Ports' latest acquisition.

PTI reports: "Shares of Adani Ports and Special Economic Zone on Tuesday gained nearly 5 per cent after the company said it will acquire controlling interest in Gangavaram Port Ltd from DVS Raju and family for Rs 3,604 crore.

The stock jumped 4.67 per cent to Rs 755.35 on BSE.

On NSE, it rose by 4.58 per cent to Rs 755.

Adani Ports and Special Economic Zone (APSEZ) is acquiring the 58.1 per cent stake held by DVS Raju and family in Gangavaram Port Limited (GPL), the company said in a statement.

The acquisition is valued at Rs 3,604 crore.

APSEZ had announced acquisition of Warburg Pincus' 31.5 per cent stake in GPL on March 3, 2021, and together with this acquisition, APSEZ would have 89.6 per cent stake in GPL.

GPL is located in the northern part of Andhra Pradesh next to Vizag Port."

12:30 PM

Adani Ports to acquire additional 58.1% stake in Gangavaram Port

Adani Ports and Special Economic Zone (APSEZ) has announced it will acquire the 58.1% stake held by D.V.S. Raju and family in Gangavaram Port Limited (GPL) for ₹3,604 crore. The deal is subject to regulatory approvals.

Earlier this month, APSEZ had announced the acquisition of Warburg Pincus’s 31.5% stake in GPL. Together with this acquisition, APSEZ will have 89.6% stake in GPL, which has its port operations in Andhra Pradesh.

Located close to the Vizag Port, GPL is the second largest non-major port in Andhra Pradesh with a 64-MMT capacity and established under concession from the Government of Andhra Pradesh (GoAP), which extends till 2059.

It is an all-weather, deep-water, multi-purpose port capable of handling fully laden super cape size vessels of up to 200,000 DWT.

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12:00 PM

SFHL to raise stake in auto unit for ₹13 cr.

Sundaram Finance Holdings Ltd. (SFHL), an associate company of Sundaram Finance Ltd. has decided to increase its stake in Chennai-based Flometallic India Pvt. Ltd. (FIPL) by 6.84% by acquiring 650 equity shares from individual shareholders for a cash consideration of ₹13 crore.

With this, SFHL’s stake in FIPL will increase to 46.84% from 40%. The shares of ₹1 lakh each are to be purchased from 14 individual shareholders for a total consideration of ₹13 crore, excluding stamp duty, applicable taxes and other expenses. The transaction is likely to be completed by June end, SFHL said in a regulatory filing.

FIPL is engaged in the manufacture of iron castings for the automotjve industry. It reported a turnover of ₹304 crore for FY20 with a net profit of ₹10 crore.

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11:30 AM

Gold falls as strong U.S. yields, dollar sap safe-haven appeal

Risk-on sentiment prevails.

Reuters reports: "Gold prices slipped on Tuesday as the U.S. dollar strengthened along with Treasury yields, while markets awaited comments on economic health from Federal Reserve Chair Jerome Powell and Treasury Secretary Janet Yellen later in the day.

Safe-haven gold is highly sensitive to rising bond yields as they raise the opportunity cost of holding the bullion. Spot gold was down 0.3% at $1,734.31 per ounce by 0345 GMT. U.S. gold futures were also down 0.3% at $1,733.70 per ounce.

"We get a little bit of easing in yields that encourages people to step up and buy some gold. Again the afterthought is we have a little bit of higher yields coming up again, so we better sell gold - this is going to be a constant theme," said Stephen Innes, chief global market strategist at financial services firm Axi.

The dollar index was up 0.1% against a basket of currencies, supported by firm U.S. Treasury yields. The U.S. economy is "much improved," Powell said on Monday, but at the same time warned that the recovery is still "far from complete."

"We expect gold to either see selling pressure once more beyond the quarter end, but may trade in a range in the next one week," OCBC analysts said in a note. Palladium was down 0.3% at $2,608.95, trading close to a more than one-year high of $2,755.18 on March 18.

"Palladium provides a good reflation alternate because the market is in such a massive deficit and they're projected to be in a deficit in 2021 and the need is high," Innes added. "You've got a deficit because of the mine closures, but it is going to take a lot longer to repair ... now it's a couple of months, which is going to continue to weigh on the massive deficits we think is building."

Silver slipped 1% to $25.53 and platinum fell 0.9% to $1,172.91."

11:00 AM

Centre readies draft plan for district-wise export promotion

The government has readied a draft district-wise export promotion plan for 451 districts in the country after identifying products and services with export potential in 725 districts, Commerce Secretary Anoop Wadhawan said on Monday.

Aiming for double-digit export growth from 500 districts over 3-5 years, the Commerce Ministry has asked States to prepare an annual ‘export ranking index’ of districts on export competitiveness with the assistance of the Directorate General of Foreign Trade (DGFT).

While foreign trade constitutes 45% of India’s GDP, most export promotion efforts are driven by the Centre.

The district-specific approach that perforce involves the States in identifying potential export sectors and the logistics bottlenecks to be fixed, was taken up after Prime Minister Narendra Modi pushed for each district to aim to be an export hub during his Independence Day address in 2019.

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10:40 AM

Rupee rises 3 paise against US dollar in early trade

The rupee mirrors the performance of stocks this morning.

PTI reports: "The rupee advanced by 3 paise to 72.34 against the US dollar in opening trade on Tuesday, as easing crude oil prices and buying trend in equity markets lifted sentiment.

The rupee's gains were, however, restricted as investors turned a bit cautious due to rising US dollar amid foreign fund outflows.

At the interbank forex market, the local unit opened flat at 72.37 against the US dollar, then gained some strength to quote at 72.34, a rise of 3 paise over its last close.

In the previous session, the rupee had settled at 72.37 against the American currency.

Global oil benchmark Brent crude futures fell 0.94 per cent to USD 64.01 per barrel.

On the domestic equity market front, the BSE Sensex was trading 90.66 points or 0.18 per cent higher at 49,861.95 in early deals, while the broader NSE Nifty rose 32.10 points or 0.22 per cent 14,768.50.

Foreign institutional investors were net sellers in the capital market on Monday as they sold shares worth Rs 786.98 crore, as per exchange data.

The dollar index, which gauges the greenback's strength against a basket of six currencies, rose 0.16 per cent to 91.88."

10:20 AM

China seeks to rein in mobile apps' collection of personal data

China's cyber watchdog said on Monday mobile app providers cannot deny users basic access to their services even if they decline to share non-essential personal information, in the government's latest attempt to curb the sprawling technology sector.

In a statement on its verified WeChat account, the Cyberspace Administration of China (CAC), did not name any app providers in particular but said the requirement was aimed at regulating their access to personal data and protecting the information of individuals.

China has increased scrutiny of its technology sector in recent months, including drafting anti-monopoly rules for tech firms following a dramatic suspension last year of Alibaba-backed Ant Group's planned $37 billion initial public offering.

Many app providers in China, especially on Android systems, require that users share non-essential information with them, such as picture albums or cameras, in order to access their services. Users who decline to share the information can be denied access.

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10:00 AM

Indian shares rise as bank stocks gain

A recovery after yesterday's losses.

Reuters reports: "Indian shares edged up on Tuesday, supported by gains in beaten-down bank stocks, as sentiment was lifted by a pullback in U.S. 10-year bond yields.

The blue-chip NSE Nifty 50 index rose 0.4% to 14,793.80 and the benchmark S&P BSE Sensex gained 0.4% at 49,982.63, as of 0350 GMT.

The Nifty bank index gained 0.8% on Monday, while the public sector bank index rose 1.4%. The Nifty bank index had fallen over 5% in the past week.

India's top court will pronounce a verdict over waiving interest on loans under moratorium later in the day.

Meanwhile, India's market regulator said on Monday that stock exchanges and other market entities will need to switch quicker to backup sites to resume operations in case of disruptions like last month's at the nation's top bourse."

9:30 AM

Maruti Suzuki to raise prices from April

The country’s largest car maker Maruti Suzuki India on Monday said it will increase prices across its model range from next month in order to offset the impact of high input costs. Over the past year, the cost of the company’s vehicles have been impacted adversely due to an increase in various input costs, the auto major said in a filing.

“Hence, it has become imperative for the company to pass on some impact of the above additional cost to customers through a price increase in April 2021,” it added.

The price increase shall vary for different models, it added.

The company however did not share details about the quantum of the price hike it intends to take from next month.

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Printable version | May 9, 2021 10:36:03 AM | https://www.thehindu.com/business/businesslive-23-march-2021/article34137707.ece

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