More than 50% of executives from major corporations in West Asia and Africa agree that surviving 2010 would remain a challenge
The corporate world is still nervous about economic recovery, a survey of senior executives at nearly 900 major companies worldwide has revealed, reports PTI.
More than 50% of executives from major corporations in West Asia and Africa took part in the study conducted by global consultancy firm Ernst & Young (E&Y).
The research revealed that over half (53%) of the companies agreed that surviving 2010 would still remain a challenge compared to nearly three-quarters who had said that they were focused on securing the survival of their present business last year.
However, the percentage looking to pursue new ventures this year has also risen to 34% from 19% in January 2009.
Companies focused on improving the performance of their current assets were down to 27% from 39%, and the proportion still restructuring their business also dropped to 27% from 37% over the year.
Tariq Sadiq, West Asia markets leader, E&Y West Asia said, "The region has, in varying degrees, bucked the more extreme after-effects of the downturn."
Organisations may be less worried about survival over the next 12 months, but the return to a healthy operating environment is still some way off.
The overwhelming view is that most companies are still focused on securing the present, which means that they are still in the early stages of responding to the current environment.
State-run IFCI itself is unsustainable and was bailed out by the government in the past. It has sanctioned a loan of Rs225 crore to an entity which is on the RBI list of wilful defaulters
IFCI Ltd, which has been running on grants from the Indian government and is undergoing a massive restructuring (more about that later) has sanctioned a whopping Rs225 crore loan to Blue Coast Hotels Ltd, formerly known as Blue Coast Hotels & Resorts Ltd. Before that, the entity was known as Morepen Hotels Ltd.
Incidentally, both these entities are related to Sushil Suri, a prominent name on the RBI’s wilful defaulters list, and Blue Coast still owes Rs10 crore to the state-run financer, said a company official from IFCI. As of December 2009, Mr Suri owned 0.37% stake in Blue Coast Hotels and 1.22% stake in Morepen Laboratories Ltd. Blue Coast Hotels & Resorts is a group company of Morepen Laboratories where Sushil Suri is chairman and managing director.
The entire process of sanctioning Rs225 crore to Blue Coast Hotels took less than 10 days and has raised many eyebrows in IFCI corridors as well. IFCI has also decided to add Rs10 crore to the total amount sanctioned for Blue Coast Hotels so that the hotelier can honour the debt.
Apparently, it seems that Mr Suri, who had appeared in the RBI’s ‘wilful defaulters list’, is no longer a defaulter. “We have received a certificate from the statutory auditors of the company (Blue Coast) saying that his name is no longer on the RBI’s wilful defaulters list,” said an official from IFCI. The official, however, declined to comment on the terms of the deal.
A source close to the developments said, “I find it hard to find another example of a financial institution sanctioning a large loan to a group that is already in default. The entire process from application to sanction took less than 10 days with the loan originating from IFCI's Hyderabad office. It is also a matter of concern that IFCI is giving loan to a person who is on RBI's 'wilful defaulters list'.”
According to the filing to the Bombay Stock Exchange (BSE), Morpen Laboratories had a total debt of Rs757 crore. The company incurred a net loss of Rs10.90 crore for the quarter ended December 2009 compared to Rs13.50 crore for the corresponding period last year.
Separately, the government has invited expressions of interest for a study of key strategic issues pertaining to IFCI. The consulting firm will be mandated to examine the current business model of IFCI in the context of the business environment and to explore comprehensively the strategic choices for the future business model so as to ensure economic viability and long-term sustainability, the government said in a notification.
By 2002, IFCI had accumulated huge losses which completely eroded its equity capital and reserves. To avoid any further crisis, in 2002-03, the government, in consultation with state-run banks and financial institutions, had worked out a restructuring package for IFCI, which included financial assistance of Rs5,220 crore to the entity over the period from 2003 to 2011-12. Under this package, the first tranche of Rs523 crore was provided as optional convertible debentures with a right to recompense at par and Rs2,409.30 as grants till 2006-07.
According to the government notification, the broad terms of the assignment of the consulting firm are as follows.
1) Whether the business model of IFCI is sustainable in terms of risk, profitability and return over the medium to long term, in the present day economic and regulatory environment.
2) What are the incremental activities or areas which can be aligned with the existing business model of IFCI to add to its profitability and to assure a robust sustainable growth strategy?
3) What would be a better fit for IFCI (a) induction of a strategic investor, (b) merger with a public-sector entity, and (c) continuing as it is on a standalone basis? These options should clearly articulate the areas of synergy and value creation.
4) How can the interest of the government be safeguarded in the event of induction of a strategic investor or merger with a public sector entity, keeping in view the government’s holding of Rs523 crore, Optionally Convertible Debentures (OCDs) in IFCI and outstanding government guarantees to IFCI which were Rs2,468 crore as on 31 March 2009?
An increasing number of HNIs are openly bargaining with fund distributors to get a share of trail commission
The confusion over accounting of trail commissions continues to rattle the mutual fund industry. On the one hand, there was a clear need to stop the practice of tying investors to a specific distributor in perpetuity or to ask them to get a no-objection certificate in order for them to shift to another distributor.
In late December, the Securities and Exchange Board of India (SEBI) directed the Association of Mutual Funds in India (AMFI) to implement its own earlier decision that said that funds should pay trail commission to new distributors when the client has moved away from one distributor to another.
Moneylife Digital has reported earlier (see here) on the confusion arising over implementation of this rule without examining all the issues and consequences. It has led to a raging battle to transfer assets under management (AUMs) by hook or by crook. Distributors tell Moneylife Digital that investors are being asked to sign a scrap of paper where the fine print permits the transfer of their AUM to a new distributor; these sources say that banks have been especially active in obtaining such a transfer under the guise of consolidating investors' accounts.
With independent financial advisors (IFAs) reluctant to service small investors after SEBI scrapped the entry load, it has been a happy hunting ground for banks to get the business of such customers. Naturally, IFAs are outraged. They are especially angry at mutual fund companies that are in a hurry to accept and act on these requests to transfer AUMs. The game has shifted from serving the investor to running after trail commissions.
Moneylife had earlier reported that the chase for trail commission business is gaining traction among the largest banks and financial advisory firms like HDFC, NJ IndiaInvest and Prudent Corporate Advisory Services who are actively encouraging their team to snatch AUMs.
"Now I am getting threatening calls from high net-worth individuals (HNIs) saying that now that you are getting paid (trail commission), how much (of the commission) are you ready to part with me, or I will transfer the AUM. I have no option but to agree, otherwise he (the HNI) will move to some other broker," says an IFA.
But many agree that who deserves the trail commission is the moot question. When an investor who has bought a scheme from distributor A and transfers it to B, the general understanding is that B will begin to earn the trail commission. And hence the rush to get investors to sign a transfer form. But B has done nothing to earn that investment, so some IFAs themselves admit that it seems unfair that B has to be paid. On the other hand, A cannot continue to earn the trail when the investor has moved away. So should trail commissions be abolished when an investor shifts to another distributor? Some agree, even though it would deal yet another blow to the IFA industry. The solution is obviously to find another way to compensate advisors.
What is worse, the only beneficiary in all of SEBI's actions seems to have been banks and bank distributors. Was this the end goal that SEBI had in mind when it scrapped entry loads? And shouldn't the regulator have examined the issue of trail commissions fully over the past couple of years, when investors had been complaining about not being able to switch IFAs?
Top SEBI officials have taken the position that the industry will learn to swim and find a solution. But as things stand, mutual funds are only sinking with large sums of money flying out of the industry. That result defeats the government's stated objective of encouraging retail investors to participate in the capital market through mutual funds. Isn't SEBI completely out of sync with this objective?