Ratings agency CRISIL said The base rate mechanism, which now replaces the benchmark prime-lending rate (BPLR) mechanism, is likely to make working capital borrowing from banks more expensive for corporates than accessing funds from the capital markets.
According to a CRISIL study of the working capital requirements of India's corporates, switching to commercial papers (CP) will assist corporates save interest costs, thereby resulting in a one percentage point increase in their profits, it said in a release.
Corporates are likely to switch to CPs to fund short-term working capital requirements under the base-rate mechanism. Somasekhar Vemuri, head, CRISIL Ratings, said, "By making this switch, CRISIL estimates that corporates can save as much as Rs11.7 billion in interest expenses - equivalent to around 1% of their net profits. These savings may be higher during periods of abundant liquidity".
The supply of CPs from corporates was low in the past; corporates had the flexibility to avail of funds from banks at rates that were on par with CP rates under the erstwhile BPLR regime. Now, with that flexibility no longer available under the base-rate mechanism, corporates are likely to issue a larger quantum of CPs, the ratings agency said.
CRISIL said its analysis reveals that corporates with ratings of 'P1' or higher, have rupee-denominated working capital bank borrowings of around Rs1,800 billion as on 31 March 2010, all of which potentially can be replaced by CPs.
"CRISIL believes that the additional comfort of liquidity backup, combined with historically robust credit quality, makes CPs rated 'P1+' and 'P1' by CRISIL attractive investment options for Mutual funds (MFs), even on a risk-adjusted basis. Under the base-rate regime, MFs can consider lending to corporates directly by subscribing to CPs. Banks, too, are likely to invest aggressively in CPs, to retain corporate customers, thereby adding to the overall demand for CPs," said Raman Uberoi, Senior Director, CRISIL Ratings.
Short-term instruments rated 'P1+' and 'P1' by CRISIL, have displayed robust credit quality over the past decade; the one-year default rate for such ratings during the period 2000-2009 has been zero, the ratings agency said.
Coimbatore: Consumer durables major Videocon is setting up a TV manufacturing unit at Manamadurai in Tamil Nadu with an investment of Rs1,500 crore, reports PTI.
A memorandum of understanding to this effect would be signed in the presence of Chief Minister M Karunanidhi on August 4 at Chennai, Industries Department sources said.
Similarly, MoUs would be signed on that day for a Rs 1,500 crore tyre manufacturing unit of JK Tyres and an LNG Terminal at Ennore by Indian Oil Corporation, the sources said.
New Delhi: The Supreme Court on Monday directed private telecom firms to give their financials to the government auditor CAG, but stopped the auditor from vetting the papers till a case on jurisdiction was decided by the High Court, reports PTI.
A bench headed by Chief Justice SH Kapadia directed the members of GSM lobby COAI to give revenue sharing details to the country's top auditor within two weeks from today to ensure ensure that the government was getting its due by way of licence fee.
The apex court, however, said that no audit would be done as the matter on CAG's jurisdiction to audit the accounts of private telecom companies is still to be decided by the Delhi High Court.
Till the hearing of the petition in High Court is pending, no steps shall be taken by CAG to carry audit of financial accounts based on the documents given by them (private telecoms), the bench said.
"Each of the members of COAI, within two weeks must furnish to the Comptroller and Auditor General (CAG) copies of revenue sharing details," stated the bench, which also consisted Justices KS Radhakrishnan and Swatantar Kumar.
The court also said if CAG requires any further documents, the operators would have to provide them.
During the hearing, counsels appearing for CAG informed that some of the operators including Tatas have already submitted their revenue sharing details, while some other operators like Bharti are yet to do so.
The Delhi High Court had asked the telecom companies to submit their account books to CAG. CAG had been asked by the Centre to check if there was any under-reporting of revenue for calculating the licence fee.
The two telecom lobby groups -- COAI (GSM operators) and AUSPI (CDMA players) -- had challenged the recent CAG direction to the telcos to submit their revenue sharing details for auditing.
On 20th May, telecom tribunal TDSAT had declined a request from Bharti Airtel and Vodafone to stay the CAG audit.