Fitch reaffirms credit ratings on RIL

The affirmations follow RIL's recent announcements of investment plans for the petrochemical, upstream oil and gas, telecom and power sector

Global research firm Fitch on Monday reaffirmed its credit ratings on various debt programmes of Reliance Industries (RIL) that has chalked out major investment plans across petrochemicals, gas, telecom and power sectors, reports PTI.

"The affirmations follow RIL's recent announcements of investment plans for the petrochemical, upstream oil and gas, telecom and power sector," Fitch said, while reaffirming its ratings.

The company's long-term foreign currency issuer default rating is at 'BBB-'; long-term local currency IDR at 'BBB' and national long-term rating at 'AAA'. The outlook on these ratings is stable. AAA is the highest credit safety grade Fitch assigns in India and all the other ratings are relative that.

Fitch has also affirmed RIL's national long-term ratings for its Rs 2,000 crore and Rs 13,000 crore non-convertible debenture programs at 'AAA (ind)'.

It said, however, the timing and value of the company's oil and gas organic expansion projects have not yet been finalised. "These include various petrochemical capacity additions, setting up of a coke gasification facility at its refining complex at Jamnagar and accelerating the development of its various upstream discoveries," Fitch said.

RIL has also entered into two separate joint ventures (JVs) in the US shale gas industry and the rating agency said the company's investments in oil and gas will strengthen its business profile over the medium-to-long term.

As for telecom, Fitch said RIL's foray into the sector increases the company’s overall business risk by exposing it to the highly competitive domestic telecom industry. RIL plans to invest $4-$5 billion in the next three-four years, mainly in the Broadband Wireless Access (BWA) arena.

Fitch said broadband penetration is extremely low — less than 1% — and RIL considers broadband to be a huge growth opportunity.

RIL has also announced that it will enter the power sector by making investments in coal-based, hydro, nuclear (when it is opened for the private sector) and solar power. "Given India's strong growth prospects and current power deficit, Fitch believes that an entry into the power sector can be a strategic fit with RIL's broad energy business," it said.

In FY10, RIL's consolidated revenue was over Rs2 lakh crore with EBITDA (operating profit) margins of 15%.

RIL's liquidity position is strong, with cash equivalents of Rs21,900 crore at FY10.


Infosys disappoints markets with below expectation Q1 net profit

During the first quarter to end-June, the IT major was expected to clock net profit of over Rs15 billion. Infosys seems to have disappointed on three fronts -- European revenues, margins (due to wage hikes), and attrition (about 25%, which is too high)

Infosys disappointed the market with a net profit of Rs14.88 billion (disappointing, expectation was above Rs15 billion). Net sales was at Rs61.98 billion (more or less in line) while earnings per share (EPS) was at Rs26.05. Client additions were at 38, employee adds at 1,026 and FY11 revenue was seen at $5.72-$5.81billion thanks to 19%-22% growth (in line). FY11 EPS was seen at Rs112-Rs117 a share (on the lower side at the lower end).

The other highlights of the June quarter results were revenues from banking, financial services and insurance (BFSI), a key segment, were 36% of revenues vs. 35%. Revenues from Europe was down 5.3% quarter-on-quarter (qoq), 0.8% in constant currency (which was disappointing). Revenues from North America was up 6.8%, 6.9% in constant currency (in line). Utilisations including trainees increased by 370 basis point (bps) qoq (expected).

Infosys seems to have disappointed on three fronts -- European revenues, margins (due to wage hikes), and attrition (about 25%, which is too high). It is feared that to bring down attrition, wage bill may only rise from here. Also, since Infosys was expected to be the best result of the big three IT companies, prospects for the other two (Wipro & TCS) have dimmed.

The higher revenue guidance in US dollar terms to $5.72-$5.81 billion from $5.57-$5.67 billion suggests it expects volume growth to be strong - which is positive. EPS guidance was revised up by 5% to Rs112-Rs117 which seems to be mostly due to rupee depreciation expectations (Infosys is now assuming its US$/INR rate at Rs46.45 vs. Rs44.50 earlier).

Infosys management is focusing on the positives of the June quarter results. These were volume growth, which was 7.6% (best in many quarters, in fact since Q2FY08), higher employee additions at 36,000 for the year (vs. 30,000 earlier), and higher FY11 revenue guidance. They acknowledged that pricing has declined (1.6% in constant currency terms) and said they remain cautious because indicators seem weak but said they were "prepared for growth in the future".

The market was focused on whether Infosys exceeds Q1 guidance and by how much. The market clearly expected it to, and also expected an upward revision in revenue and EPS guidance for the year (consensus was in the range of Rs115- Rs119). Among all its verticals, BFSI was actually expected to be the best performer so any negative surprise there was supposed change sentiments. Although Infosys had the lowest exposure among large IT companies, the market was keenly watching to see the impact of European crisis, what's happening with clients such as BP, and of course volume, new client wins, and comments about IT budgets for the year. In an interview with CNBC during mid-June, S Gopalakrishnan, chief executive and managing director of Infosys had said that Europe remained a concern and believed that the recovery is going to be prolonged. But he had also said that Infosys had not been affected by the Europe crisis until then.

On Tuesday Infosys shares clsoed 3.4% down at Rs2,795 on the Bombay Stock Exchange, while the benchmark Sensex ended 0.3% up to 17,985 points.


Raju’s Satyam: A trail of fraudulent sales, inflated invoices, accrued interest and understated liabilities

According to CBI, the Rajus made Rs2743 crore from share sale alone besides buying 935 properties adding up to 5,757 acres valued at Rs3,455 crore

Fraudulent sales, inflated invoices, accrued interest and understated liabilities were some of the major methods that Ramalinga Raju and his henchmen used in order to make Satyam Computers Services Ltd appear highly profitable and keep the share price high, so that he could take away a whopping Rs2,743 crore out of the company. The Central Bureau of Investigation (CBI) explained this and other intricacies of its investigation into Satyam at a media workshop in Mumbai.
According to the CBI, Satyam's promoters held a mere 2.18% stake in the company at the time of its collapse in December 2008, as compared to the 18.78% share holding in 1991. The Rajus realized Rs767.73 crore through sale of shares and another Rs1,951.46 crore by pledging their holding. Lenders sold large chunks of these shares when the market turned turbulent and Mr Raju could not meet margin calls. Yet, the biggest beneficiaries of keeping the share price at an abnormal high. CBI estimates that the Rajus made Rs2,743 crore from Satyam shares alone -  Rs767 crore from selling their shares, Rs1,951 crore raised by pledging shares and Rs25.80 crore earned as dividend income. As the CBI pointed out, the company announced hefty dividends when it was aware that the revenues were fake and the company had no business declaring a dividend at all. This gave the Rajus an illegal dividend income.
The money earned was used to purchase 6,000 acres of land through 327 companies, floated to circumvent the Land Ceiling Act. Some land was also purchased in the names of close relatives. CBI estimates that the Rajus acquired 935 properties adding up to 5,757 acres and valued at Rs3,455 crore. 
JL Negi, general manager, Reserve Bank of India (RBI), on deputation to the CBI explained how Ramalinga Raju falsified facts and puffed up results. He said, the company benchmarked its performance to that of Infosys. The financial numbers were massaged through fraudulent sales- invoices generated through "Excel porting", which allowed the founder of Satyam and his co-conspirators to raise invoices bypassing the regular system and obfuscating an audit trail. In the period from April 2003 to December 2008, 7,561 fake invoices were created by a set of people close to Raju, who had access to the system. The fake invoices generated without purchase orders were shown as "hidden" and could only be accessed by a chosen core group. The CBI alleges that Mr Raju even asked his software team to develop certain products for seven non-existent customers.

These were Mobitel, Cellnet, E-care, Synony, Northsea, Autotech and Hargreaves. Fake revenue was recognized for these products by generating fictitious email as if they originated from these customers.  A domain was created in rediffmail to send these emails and 63 invoices were generated to raise Rs430.66 crore. The company even booked Rs31.18 crore as forex profit on account of fictitious sales.
In addition, it claimed accrued interest of Rs376 crore, understated liability of Rs1,230 crore and overstated the debtors position by Rs490 crore to show high operating margin of 24% against the actual margin of 3%. As is now well known, the aborted Maytas acquisition deal was a last ditch attempt to paper over the fictitious assets with real ones in the merger process. The company also took short-term loans and advances from banks and Institutions such as HDFC, HSBC, Citi Bank, BNP Paribas, ICICI Bank, Fincity/Higrace and Elem Investments Pvt Ltd during the period between 2000 and 2008 on the basis of false and fabricated board resolutions and majority of the loans were not shown in the books. The CBI also claims that Satyam paid interest of Rs37.62 crore and availed of a Rs1,493.84 crore loan from banks which is not accounted in the books. However, an equivalent amount was shown as amount being transferred from the accounts maintained at BoB, New York. The fictitious sales were reported as realized and shown as deposited in the account of the company maintained with BoB, New York.

The company had accounts with 36 banks in India and seven banks overseas. The cash and bank balances shown in various banks in the form of current account and fixed deposit was Rs5,160.34 crore for the period 2002 to 2008, while actual balances were only Rs139.78 crore. Thus, there was a difference of Rs5,020.55 crore.
Satyam also diverted Rs154.40 crore to global networking solutions, Infotech solutions, Alpha software and Tech Consultant Ltd during 1999 to 2002 without account for it.



Shantilal Hajeri

7 years ago

"Asatyam Eva Jayate". The audit fees paid to auditors, the slary paid o CFO/CEO etc are just disguised bribes to cover up the fraus committed by Sayam. All the connivers should be held equally guilty.

Mahender Kumar

7 years ago

This seems so surreal but this sure makes us realize that facts can be stranger than fiction. Hope our financial crime laws are stringent enough to ensure that this person remains behind bars for the rest of his life and is forbidden from undertaking any commercial transaction ever in his life. Equally importantly, now CBI needs to spend their time trying to establish linkage to to those people who were in cahoots with him including employees, partners, friends, relatives, auditors etc and bring them 'to book' (quite literarily). The courts should treat this entire case as a class-action case and the guilty should be given exemplary punishment to ensure that anyone thinking of doing such a crime or collabarating in such a crime should know what his/her fate can be when (and not if) s/he were caught.

Raghavaiah K

7 years ago

There are so many fradus like this in India, and will be happening in future too. Is there any institution/authority to recover the losses from these fraudsters to the credit of exchequer?
Or, may be let off saying it is not worth probing for years like Telgi's Stamps or Bofors cases. If a common steals a vessel at water tap in rural india beacause of poverty and hunder, he will be punished by beating to death by every one including police. This is our India.

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