Five fatal flaws of trading

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds

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Bankers outweigh Air India credit rating over provisioning

 

Even if the debt-laden national carrier manages to get a fresh debt recast plan done, it is unlikely to go through with the lenders, unless some basic CDR provisions are given a go by, such as scrapping the provision of tying dividend payment to profitability, whether AI makes money or not, pointed out these bankers

Mumbai: The consortium of lenders that has rejected the Reserve Bank of India (RBI)-approved debt recast for Air India (AI) is more worried about their credit ratings and image in global markets than the nearly Rs10,000-crore provisioning they will have to set aside under the plan, reports PTI.

And going by this, even if the debt-laden national carrier manages to get a fresh debt recast plan done, it is unlikely to go through with the lenders, unless some basic corporate debt restructuring (CDR) provisions are given a go by, such as scrapping the provision of tying dividend payment to profitability, whether AI makes money or not, pointed out these bankers.

The lenders are also not happy with the “special treatment” that State Bank of India (SBI) got in the CDR proposal, prepared by its own i-bank arm SBI Caps, as despite the fact that most of them do not have as much exposure as SBI, they are forced to shell out much higher than the government-run lender.

The lenders, barring SBI, which has given a Rs1,100- crore cash-to-credit loan to AI, and therefore a low provisioning of only about Rs37 crore, are also peeved at the way SBI Caps “short-changed” them in the CDR plan, as those with similar exposure will see a hole as much as Rs500-Rs700 crore in their balance sheets if it goes through, a senior public sector banker, who sought not to be named, told PTI.

The bankers said it is not the first time that SBI Caps has “goofed up” the loan syndication and CDRs. In the first place they were roped into extend loans to companies like AI, Kingfisher Airlines, GTL and Bharati Shipyard, which are all now desperately seeking CDR packages.

The junked Rs22,500-crore CDR envisages converting Rs11,000 crore of the working capital into long-term debts ending 2020, and Rs7,000 crore into cumulative redeemable preferential shares but without an assured return, which will be redeemable from 15th and 20th year onwards.

That apart, it envisages the government infusing up to Rs30,000 crore into AI over the next 10 years, and the airline selling and leasing back the first 14 of the 27 Dreamliners.

The plan will allow Air India to save up to Rs1,000 crore on an annual basis. The RBI had last November given an in-principle approval to the plan and set a 20th March deadline to complete the process. As a special case, RBI has allowed banks to make provisions for a five-year period instead of the normal three years.

The CDR plan also aims at AI turning EBIDTA positive by 2013, cash positive by 2018, and in net profit by 2020.

But a senior SBI official, who wished not to be identified, does not buy the ‘favouritism’ argument, saying his is not a term loan as others’ are.

“Our exposure to AI is a cash-credit facility and not a term loan as most others’ are. Since it’s fully secured, we have priced it at a cheaper rate too. Similar is the case with HDFC Bank and a few others. And so they too don’t have any issue with this CDR proposal,” the official said.

“Of course, I do understand their concerns, as if the plan goes through it will badly impact their credit worthiness among global lenders and rating agencies, since together they will have to set aside around Rs10,000 crore as provisions with no guarantees and no assured dividends,” he added.

When pointed out that AI is a government-run entity as most of the airline’s lenders are, he said, “banks have their own problems and what another PSU does should not bother them.” 

He pointed out the non-feasibility of AI turning into black even after a CDR, saying, “Neither there is stability at the airline nor it has sound business model. The biggest worry is that there is no semblance of a management structure at the AI.”

The 13 lenders, including SBI, which together have an exposure over Rs27,000 crore to Air India in working capital loans or short-term loans and another Rs42,000 crore towards aircraft purchases, had to take a huge hit after they had subscribed to the preferential issue from Kingfisher following the CDR thrashed out by SBI Caps in November 2010 and converted their preferential shares into equity.

SBI Caps had been the undisputed leader in loan syndication and debt recast for decades.

The lenders now together hold a little 23.4% in the troubled Kingfisher Airlines, which they bought at a hefty premium at Rs64.48 a share last March, but since then its scrip tanked more than half. On Friday, the share closed at Rs23.75 on the BSE.

Another banker with over Rs570 crore exposure to AI, said banks will not be comfortable if a new proposal is given by SBI Caps and that they will prefer to vet it themselves.

“It seems SBI Caps has become a darling for companies that are under stress and approaching CDR,” he averred.

SBI Caps managing director S Vishwanathan could not be reached for comments despite many attempts.

The GTL case is very special. In June 2010, SBI Caps syndicated a Rs5,000-crore loan for GTL Infra to pay for Aircel Cellular’s tower business. But by September 2011, SBI Caps prepared a CDR proposal for GTL Infra which proposed that lenders convert 25% of the Rs16,200-crore debt into equity, while the promoters would infuse only Rs300 crore.

 

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COMMENTS

Ratan

5 years ago

Its absolutely right to be conservative & cautius about AI's turn around plan. It definitely has no sound business plan, or strategy. There is no management. It is run by Rajiv Gandhi Bhawan in Delhi by bureaucrats who have absolutely NO CLUE. Even small corrections are not being taken. Till date the management has failed to reduce its staff strength by retiring staff over 55 years and educing its huge wage bill. Even that it has not done.And going by the present indications it won't do either.It is looking for an easy way out by borrowing more & more from govt coffers.It should be SHUT, RESTRUCTURED & the restarted, otherwise its a doomed organisation.

400% rise in fake currency circulation: Finance ministry

“The phenomenal increase in use of counterfeit currency and suspicious transactions underline the fact that fake notes and malafide movement of funds is on the rise in the country,” a finance ministry official noted

New Delhi: As fake currency continues to be pumped illegally into the country, a latest government report states that there has been a 400% increase in such counterfeit transactions in Indian’s financial channels, reports PTI.

The report, compiled by the Financial Intelligence Unit (FIU) under the Union finance ministry states that during 2010-11 financial year (till March 2011), the agency detected “4,23,539 incidents of fake Indian currency notes (FICN) with a face value of over Rs35 crore ($6.8 million).” 

Such reports, called Counterfeit Currency Transactions (CCRs) in financial terms and sent by public and private sector banks to the FIU under provisions of the Prevention of Money laundering Act (PMLA), were 1,27,781 incidents during the 2009-10 fiscal.

The menace of fake currency being stealthily introduced in country’s banking and other financial sectors are reported regularly and the extent of the evil again came to the fore recently when a Delhi Police Special cell team seized fake currency with a face value of Rs2.24 crore ($0.4 million) and arrested two persons.

The FIU report also revealed that the Rs500 ($9.7) denomination notes bear the maximum brunt of counterfeiting in the country.

Rs 500 denomination notes constituted the bulk of CCRs at 60.74%. There was (also) a rise in the number of Rs1,000 denomination counterfeit notes reported in the year 2010-11,” the report said.

The FIU, a central agency for receiving, analysing and disseminating data related to doubtful transactions, also reported that with 37,907 reports of suspect terror-financing and rationale-less transactions, country's banks and financial institutions reported a 300% escalation in detecting Suspicious Transaction Reports (STRs).

The STRs, which gave rise to a reasonable ground of suspicion that the transaction may involve the proceeds of crime or financing of activities related to terrorism or were made in circumstances of unusual complexity, increased three times in 2010-11 as compared to 10,067 in 2009-10 fiscal.

The FIU report, submitted recently to the finance ministry, stated that “private Indian banks contributed majority of CCRs”.

“The phenomenal increase in use of counterfeit currency and suspicious transactions underline the fact that fake notes and malafide movement of funds is on the rise in the country.

“The FIU is continuously alerting agencies like the CBI (Central Bureau Of Investigation), Enforcement Directorate, Customs, Narcotics Control Bureau and special police units to act on these instances under the stringent laws that they enact to curb terror financing and tax evasion within the country and in offshore deals,” a senior finance ministry official said.

While a CCR is equivalent to details of an instance of counterfeit currency detected by a bank, an STR includes details of all accounts, transactions, individuals and legal persons or entities related to a suspicious transaction.

 

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