Companies & Sectors
Government may seek time till November for spectrum auction

As per the new schedule given by Times Internet, the agency which will operate the auction process, the bidding for the airwaves for the telecom spectrum can be started only by early November

 
New Delhi: The Indian Government may request the Supreme Court to extend the deadline for completing spectrum auction by about three months to November, reports PTI.
 
According to sources, as per the new schedule given by the agency which will operate the auction process, the bidding for the airwaves can be started only by early November.
 
"The bidding for spectrum is expected to start only by early November. The extension from the court will be sought accordingly," said an official source.
 
The Empowered Group of Ministers (EGoM) on telecom on Tuesday decided to approach the apex court to seek an extension of 31st August deadline to complete the auction of airwaves.
 
"Auctioneer has given us schedule...we will approach the Supreme Court to place before them the fact what government has done. Also, we will place before them that in terms of this schedule, it is not possible to conduct auction by 31st August," Telecom Minister Kapil Sibal told reporters after EGoM.
 
After cancelling 122 telecom licences in February, the Supreme Court had asked the government to complete auction by 31st August and extended the validity of quashed licences till 7th September.
 
It is crucial for companies such as Sistema Shyam, Uninor and Videocon to win the auctions so as to be able to continue operations.
 
Sibal said the government will file an interim application before the court and request it to consider the facts as stated.
 
"As you know, (the validity of) licences has been extended till 7th September. So, we will go back to the Supreme Court with interim application (IA) and request it to consider the fact as stated in the application," Sibal said.
 
Sources said that IA will be filed before the apex court within a week.
 
On Monday, the Department of Telecom (DoT) selected Times Internet Ltd (TIL) as the specturm auctioneer.
 
The EGoM, headed by P Chidambaram, today discussed the schedule which DoT has prepared in consultation with TIL.
 
DoT will now issue Information Memorandum (IM), the final document that will carry complete details on the auction. Sources said IM will be issued by the end of this month.
 
The government will have to complete 13 processes before the actual bidding starts. These include responding to queries of potential bidders, inviting applications and giving time to companies for submissions, finalising eligible bidders, public information sessions and mock auction.
 
The Cabinet, chaired by Prime Minister Manmohan Singh, has finalised Rs14,000 crore as the minimum price for 5 Mhz spectrum in 1800 Mhz band, and Rs18,200 crore for 5 Mhz in the 800 band.
 
The base price approved by the Cabinet was 22% lower than Rs18,000 crore suggested by the Telecom Regulatory Authority of India (TRAI). It is, however, seven times higher than the price new companies had paid in 2008 under the then Telecom Minister A Raja.
 

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China's corporate debt ratio at dangerous levels: Experts

China's corporate debt-to-GDP ratio stood at 107% in 2011, the highest in the world as large Chinese companies' debt burden is increasing after 2008

 
Beijing: Cautioning China's corporate debt ratio has reached a 'dangerous' levels, experts have warned against any stimulus measures to boost domestic demand to compensate for falling exports, saying it could put a heavy strain on corporate firms, reports PTI.
 
China's corporate debt-to-GDP ratio stood at 107% in 2011, the highest in the world, said Li Yang, vice- president of the Chinese Academy of Social Sciences, a top government think tank.
 
A ratio that exceeds 90% is considered 'dangerous', Li was quoted by state run China Daily as saying today, citing the standard set by the Organisation for Economic Cooperation and Development (OECD).
 
Li Zhenyu, rating director of China Lianhe Credit Rating Co Ltd, said the figure is likely to be calculated by taking the total debt Chinese banks carry from loans and other methods of borrowing, such as corporate bonds, and dividing it by the country's GDP.
 
Data from the China Banking Regulatory Commission show China's banking system had 55 trillion yuan ($8.63 trillion) in outstanding loans by the end of 2011. The country's GDP for the same year exceeded 47 trillion yuan.
 
"The figure doesn't reveal the financial positions of particular companies," Chen Daofu, policy research chief at the Financial Research Institute of the State Council's Development Research Centre said.
 
"But large Chinese companies' debt burden is indeed increasing because of the strong momentum seen in fixed-asset investments after 2008," he said.
 
Chen said the average debt-to-asset ratio of Chinese companies with more than 20 million yuan in annual revenue was about 40%.
 

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State finances and health of state electricity boards better than feared, says BNP Paribas

 State governments’ fiscal rectitude, with the notable exceptions of West Bengal, Kerala and Punjab, stands in stark contrast to New Delhi’s profligacy, says BNP Paribas equities research report  

 
Much attention has been focused on the inability of the government to manage its finances, especially New Delhi’s inability to curtail subsidies. But, as the famous adage goes, “whatever is true of India; the opposite is equally true”, says BNP Paribas in a recent research note. New Delhi’s inability to rationalize subsidies has rendered the fiscal responsibility legislation moot. However, state governments’ fiscal rectitude, with the notable exceptions of West Bengal, Kerala and Punjab, stands in stark contrast to New Delhi’s profligacy, finds BNP Paribas.
 
Indian states have wide-ranging responsibilities from education, healthcare, law & order, justice and agriculture. But their revenue sources are much more limited—major revenue sources for states are value-added taxes; taxes on alcohol; narcotics; entertainment and gambling; motor vehicle taxes and stamp duties. As a result, states are dependent on the central government for financial resources—more than 40% of the states’ revenue comes from central government transfers.
 
After a blip because of the global financial crisis and implementation of the Sixth Pay Commission recommendations (which increased civil servants’ pay), state finances have shown a stark improvement. They have managed to bring down their fiscal deficits from 2.9% of GDP (Gross Domestic Product) in FY10 to 2.5% of GDP in FY13 (budget estimate—BE) while a revenue deficit of 0.5% of GDP has been turned into a revenue surplus of 0.2% of GDP in FY13 BE. Most states have met the Thirteenth Finance Commission target of revenue deficit of 0% and of fiscal deficit of 3% of GSDP (Gross State Domestic Product) by FY12. The central government’s fiscal deficit of 5.8% of GDP for FY13 is far from the finance commission’s target of 4.2% of GDP.
 
Interestingly, almost all states, including the fiscally stressed states of Punjab, West Bengal, and Kerala, have forecast a fiscal deficit of less than 3% of GSDP in FY13. Each of these states has also budgeted for a sharp reduction in the revenue deficit for FY13. That sounds too good to be true, but it is true, according to BNP Paribas.
 
The other major concern is the strain of state electricity board (SEB) losses on state budgets. Media reports suggest that as part of their financial restructuring, respective state governments may have to assume part of the SEB debt. Can SEB losses upset the apple cart? No, according to BNP Paribas.
 
Media reports suggest that a Planning Commission panel has proposed that state governments absorb half the debt of the SEBs and convert it into state government bonds. Will this derail the process of fiscal consolidation of the states? Barring Jammu & Kashmir, states’ deficit and debt dynamics remain manageable even after assuming half of the accumulated losses of the SEBs. The states which have the biggest accumulated SEB losses—Rajasthan, Tamil Nadu, Uttar Pradesh and Madhya Pradesh—will comfortably maintain fiscal deficit at about 3% of GSDP (FY13E) even including the servicing cost of SEB debt. Even their debt-GSDP ratio, with the exception of Rajasthan and Jammu & Kashmir, will not increase materially. While the concern of quality of loans to private developers remains, it is believed that investor concerns over SEB loans may be misplaced, according to BNP Paribas. 
 

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