CAG indicts Raja, says he ignored PM, law, finmin advice

New Delhi: The Comptroller and Auditor General (CAG) today indicted former telecom minister A Raja for ignoring the advice of the prime minister, finance and law ministries to allocate second generation (2G) spectrum to new players in 2008 causing a whopping revenue loss of over Rs1.76 lakh crore, reports PTI

In the report, tabled in both houses of Parliament, the CAG noted that the ministry of communication and IT "decided to go ahead with arbitrarily deciding that the cut-off date for issuance of Letters of Intent would be advanced to 25 September 2007 and applications received would be decided on FCFS (first-come first-served) basis."

In November, 2007, prime minister Manmohan Singh had written to the telecom ministry suggesting introduction of "transparent methodology" of auction, "revision of entry fee" in the "backdrop of inadequate spectrum and large number of applications received for fresh licences."

The CAG highlighted that the law ministry had suggested setting up of an Empowered Group of Ministers (EGoM) to discuss the large number of applications and spectrum pricing, but the telecom ministry rejected it saying "the need for forming an EGoM arises when a new policy is being framed and in this particular issue no new policy for grant of UASL (unified access service licences) was being framed."

The auditor, however, said the "contention of the Department of Telecom (DoT) is untenable as the rejection of the advice" of the law minister to have detailed deliberations on the issues in the EGoM on the ground that changes in policy might lead to litigation "goes against the well established and time-tested procedures of functioning of the government and the collective responsibility of the Union Cabinet."

The report said the presumptive loss caused to the exchequer through spectrum allocation to 122 licensees and 35 dual technology licences in 2007-08 was Rs1,76,645 crore. It pegged the figures on the basis of third generation (3G) auction held earlier this year in which the government mopped up over Rs67,000 crore.

In the 77-page report, the CAG said the figure of the presumptive loss has been determined on the basis of various indicators like 3G auction and a price offered by an operator in 2007, besides scarcity value, nature of competition, business plans envisaged, number of operators and growth of sector.

The auditor pointed out that spectrum was allotted by DoT to the existing operators beyond the contracted limits (6.2 MHz) without imposing any upfront charge for such allotment.

On the values determined through various indicators, the presumptive value of 2G spectrum on account of grant of 157 licences in different circles during 2007-08 would be in the range of approximately Rs58,000 crore to Rs1,52,038 crore.

The value of spectrum held by 13 operators for 51 circles based on the 2001 rates works out to be Rs2,561 crore, while its value based on above indicators like 3G auction would be Rs12,000-Rs37,000 crore.

The CAG said that 85 out of 122 new licences issued to 13 companies in 2008 were granted to ineligible companies as all of them (85) did not have stipulated paid-up capital at the time of application.

Further 45 out of 85 licensees were issued to companies which failed to satisfy conditions of main object clause in the memorandum of Association (MoA), the government auditor said.

The CAG said the process of giving dual technology licences to leading telecom firms including Reliance Communications and Tata Teleservices "lacked transparency and fairness", and equal opportunity was denied to other similarly placed operators who could apply for use of dual technology only after formal announcement of the policy.

Noting that this approval (dual technology use) had violated the Cabinet decision of 2003 to allow additional spectrum at 2001 prices, the auditor said, "Deviation from a Cabinet decision should normally be with the approval of Cabinet.

"However, in the present case, such a crucial decision to permit service providers to offer access using combination of technologies (CDMA, GSM and/or any other) under the same licence with dual spectrum allocation was taken without the matter being referred to the Cabinet."


Personal finance Tuesday

BSE launches first-ever Realised Volatility Index in India; Kotak Mahindra MF unveils FMP 15M Series 7; Principal MF floats Fixed Maturity Plan-91 Days-Series XXVI; HSBC Mutual Fund declares dividends in four equity schemes; Sun Pharma fixes 26th November as record date for stock split

BSE launches first-ever Realised Volatility Index in India

The Bombay Stock Exchange (BSE) has launched its Sensex Realised Volatility (REALVOL) Index - the first of its kind in India.

Realised volatility is a measure of actual price volatility, based on past price movements over a specific period of time. REALVOL Index will provide market participants with an accurate measure of the historic volatility of the Sensex over fixed one, two and three-month time horizons.

The BSE intends to launch financial products based on the REALVOL and other new indices in the near future, as one of many parts of its broader strategy to strengthen its existing equity derivatives segment.

The introduction of the Sensex Realised Volatility Index will give market participants a new way to measure and mitigate market risk.

The BSE plans to launch futures & options contracts on its new family of realised volatility indices, after the required approvals are received. The exchange is also exploring offering of licensing options to structured product providers, who wish to create variance and volatility swaps based on the Sensex REALVOL Index.

Kotak Mahindra MF unveils FMP 15M Series 7

Kotak Mahindra Mutual Fund has launched Kotak FMP 15M Series 7, a close-ended income scheme.

The investment objective of the plan is to generate returns through investments in debt and money market instruments with a view to significantly reduce the interest rate risk.

The plan offers growth and dividend (payout) option. The tenor of the scheme is 15 months. During the new fund offer (NFO), the units will be offered at face value of Rs10 per unit. The NFO opens on 16th November and closes on 18th November. The minimum investment amount is Rs5,000. The minimum investment amount is Rs1 crore. The exit load for the scheme is nil.

CRISIL Short Term Bond Index is the benchmark index. Deepak Agarwal and Abhishek Bisen will be the fund managers for the scheme.

Principal MF floats Fixed Maturity Plan-91 Days-Series XXVI

Principal Mutual Fund has launched Principal Pnb Fixed Maturity Plan-91 Days-Series XXVI, a close-ended income scheme.

The investment objective of the plan is to build an income oriented portfolio and generate returns through investment in debt/money-market instruments and government securities.

The plan offers growth and dividend option. The tenor of the scheme is 91 days. During the new fund offer (NFO), the units will be offered at face value of Rs10 per unit. The NFO opens on 16th November and closes on 18th November. The minimum investment amount is Rs5,000. The minimum investment amount is Rs35 crore. The exit load for the scheme is nil.

The benchmark index for the plan would be CRISIL Liquid Fund Index. Shobit Gupta, head-fixed income would be the fund manager for the plan.

HSBC Mutual Fund declares dividends in four equity schemes

HSBC Mutual Fund has announced dividends in its four schemes. The record date for the dividends is 19th November.

A dividend of 20% (Rs2 per unit on a face value of Rs10) has been declared under the dividend option of HSBC Equity Fund and HSBC Midcap Equity Fund. A dividend of 10% (Rs1 per unit on a face value of Rs10) has been declared under the dividend option of HSBC India Opportunities Fund and HSBC Small Cap Fund.

Sun Pharma fixes 26th November as record date for stock split

Drug-maker Sun Pharmaceutical has fixed 26 November as the record date for its proposed stock split, under which shareholders will get five shares for each equity held by them presently.

The company has already received approval from shareholders for splitting every equity share of Rs5 face value into five shares of Re1 face value, translating into a stock split ratio of 1:5.


Mahindra Satyam ekes out Rs23.30 crore profit; but there are many bumps ahead before it scripts its turnaround

Margin recovery will be keenly watched; proposed merger with Tech Mahindra will be another key driver of future growth

Mahindra Satyam (formerly known as Satyam Computer Services) on Monday declared the financial results for the first and second quarter of the current fiscal, for the first time since it was hit by the biggest corporate fraud in January 2009 when its then founder B Ramalinga Raju confessed to fudging the company's accounts to the tune of nearly Rs7,000 crore.

The IT services major posted consolidated profit of Rs23.30 crore for the July-September quarter this fiscal, down a huge 76.10% from Rs97.50 crore in the previous quarter as higher wage costs impacted its margins. Revenue in the second quarter stood at Rs1,242 crore, a marginal fall of 0.44% over Rs1,248 crore in the June 2010 quarter.

"The dip in net profit in the second quarter was on account of employee costs...The company gave pay hike of 15% in the second quarter," Mahindra Satyam chief financial officer S Durgashankar said at the announcement of the company's results.

Mahindra Satyam's headcount has gone up from 27,722 at the end of June 2010 to 28,068 at the end of September quarter.

"We are looking at hiring about 5,000 young graduates from management and engineering schools, for next financial year. To meet our regular business requirements, our HR team will be hiring about 4,000 professional in the next six months," chairman Vineet Nayyar said.

But the road ahead might not be very smooth. Mr Nayyar has been quoted as saying, "Satyam should be viewed as a patient, which has spent almost a year under intensive care. It hasn't yet reached its full strength and is still convalescing…"

Tech Mahindra, which bought Satyam in April 2009 and is operating it as an independent company, said consultation (for merger of Mahindra Satyam) with Tech Mahindra with board members of both the companies has started along with the process of legal consultations.

Commenting on the company's financial performance, brokerage firm Religare Capital said, "While the revenue decline has stemmed, the current revenue run-rate is tracking below FY10 and the margin turnaround is taking longer than we anticipated. Post the disappointing numbers we expect the stock to correct as margin recovery could be long drawn and is likely to coincide with the announcement of Tech Mahindra merger, which could be an overhang."

The brokerage added, "The company has debt of Rs34.2 crore and a cash balance of Rs2530 crore against Rs2180 crore at the end of FY10, implying a cash generation of Rs350 crore. Debtors rose to Rs1090 crore versus Rs923 crore for FY10. Provisions have gone up slightly to Rs1630 crore from Rs1500 crore while Rs1230 crore provision in suspense account pending investigation remained the same. Net worth was Rs1990 crore implying a book value per share of Rs17.  In our view the current cash balances and positive cash generation should be enough to meet any class action lawsuits that should come their way."

BRICS Securities opined, "We prefer to wait for at least a quarter to ascertain growth  prospects.  The company maintains financial result declaration will help it significantly while bidding for projects, as declaration of updated financials removes obstacles regarding compliance."

Will Satyam finally mange to script its turnaround story?

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security).


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