Business Briefing 22/08

The rush for NCDs, a bitter pill and Murdoch’s restructuring of his Asian TV galaxy

Mopping up money in these times of relatively tight liquidity is a difficult proposition. The new surge in corporate India is a preference for non-convertible debentures (NCDs). This is a form of raising capital where money is garnered via loans taken from investors by a firm. That money cannot be converted into equity at a later stage by the firm.

The numbers are quite impressive. Tata Motors has raised Rs 1,200 crore from the market, infrastructure giant L&T, Rs 1,000 crore, and HDFC plans to raise as much as Rs 4,000 crore through the same route.
The main reason for this rush for NCDs is that firms want to broadbase their borrowing and move away from plain vanilla corporate loans that often come at a higher interest rate.

“In times of uncertain equity market conditions, firms rely on the debt market for their capital requirements. The rush being witnessed for non-convertible debentures falls in that category. Firms such as L&T are comfortably placed on the debt-equity ratio, and are broadbasing the former. It suits them to have an allocation of debt across NCDs and bank loans. Firms that are better placed on the debt-equity ratio are going to do more of this activity,” says Vikas Seth, director of My Money Securities, an investment advisory.
The NCD route is also far cheaper then securitised loans that firms raise from banks. For this reason, firms like Punj Lloyd and Dewan Housing have already opted for this route. One interesting aspect of this rush is that it is not from institutions but the retail market. This signals a revival of the individual investor’s appetite for corporate debt. 

Should the trend continue, the dormant non-banking finance companies could see a lot of action in the near future, as they mop up money from the retail end of the debt market.

A failed monsoon, and drought-like conditions in many parts of the country are certain to push food prices, already near all-time high levels, even further. While the Government may dip into its buffer stocks of rice and wheat, the outlook for sugar is bleak. By current estimates, retail prices could touch Rs 40 a kg in a few months. Not surprisingly, the agriculture minister, whose political base is in the sugar belt of Maharashtra, is worried.  He conceded that production prospects for the next sugar season are not so bright either. India is a huge consumer of sugar and its availability through ration shops is an emotive issue. Pawar is considering increasing the amount that sugar mills must contribute towards ration supplies. Currently, mills must sell 10 per cent of their output at low state-set prices for this. This could well be raised to 20 per cent. Prospects of large imports by India have sent global sugar futures to a three-decade high. Looks like it will be a bitter year for consumers.

In a ringing endorsement of its Indian operations, Rupert Murdoch-controlled Star has rewarded the local management with greater independence and regional control. Murdoch has decided to restructure his Asian broadcast businesses into three units, Star India, Star Greater China, and Fox International Channels (FIC). The changes are designed to support continued growth of each unit, and will result in a reduction in the size of its regional operations in Hong Kong by redeploying resources into local markets. John Lau, Star’s president of China and Taiwan, and Uday Shankar, chief executive of Star India, will both report to James Murdoch. Journalist-turned-media executive Shankar will also oversee Star’s sales and distribution offices in the Middle East, the UK and the US, in addition to managing the sales and distribution of all Fox-branded channels in India. While Star India had ceded ground to the Viacom TV18 joint venture channel Colors in terms of TV ratings, it still remains a clear market leader when it comes to revenues. While China was expected to contribute the bulk of Star’s revenues in Asia in the 1990s, now it’s Star India that provides close to 70 per cent of the parent company’s income in the region.

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