Pension committee considers changing stipulation of minimum four annual contributions to pension scheme; is also looking at maximising gains for subscribers by reducing the time lag in the investment of funds and reducing record-keeping charges
The New Pension System (NPS), which was thrown open to all citizens 16 months ago, is in the process of being revamped to make it more attractive. A committee appointed to overhaul the structure of NPS is considering giving pension subscribers the option to make the annual payment in one single instalment instead of a minimum of four instalments currently.
"That is something which is under consideration. This was done to give PoPs (point of presence service providers) a revenue model, but we are looking at making it a single contribution so a person can just contribute once," said Rani Nair, executive director, Pension Fund Regulatory and Development Authority (PFRDA). She said that allowing investors to make a single contribution would help generate volumes and this would ultimately benefit the PoPs.
Under the NPS, subscribers are required to make a minimum payment of Rs6,000 annually and the money is to be paid in at least four instalments a year. No instalment can be less than Rs500. There is no upper limit on either the total money that a subscriber can deposit in the scheme or the number of instalments. However, subscribers have to pay a fee of Rs20 to the PoPs each time they make a contribution. Therefore, a minimum of four instalments amounts to a fee of Rs80 every year.
In August, PFRDA set up a committee headed by GN Bajpai, former chairman of the Securities and Exchange Board of India (SEBI), to find out the causes why NPS had received a lukewarm response and to suggest remedial steps required to make it a viable pension system. Mrs Nair said the committee would take a few months to study the matter and submit its report.
The government launched the National Pension Scheme for central government employees joining service from 1 January 2004, but this was extended to all citizens from 1 May 2009. However, the scheme received little response with only about 8,000 subscribers joining in 14 months.
Subscribers have the option of investing their contribution under either of three categories - equity, government securities & corporate bonds and mutual funds. A maximum of 50% of the contribution can be invested in equities and this investment is made only through index funds. These investments are made through seven fund managers who have been designated by PFRDA. Beneficiaries can exit the scheme after reaching the age of 60, but they cannot continue beyond the age of 70.
Other members of the pension committee are Deepak Satwalekar, former managing director of HDFC Standard Life, Abhinandan Jain, IIM Ahmedabad Professor and Nachiket Mor, ICICI Foundation president. Praveen Kumar Tiwari, executive director, PFRDA, is the member secretary of the committee.
The National Securities Depository Ltd (NSDL), which is the record-keeping agency, charges Rs6 per transaction and these charges add up to the cost for subscribers. PFRDA is also in talks with NSDL to try and reduce the record-keeping charges that would significantly bring down the cost of maintaining an NPS account.
Another important issue that has been raised is maximising gains for subscribers by reducing the time lag in the investment of funds of subscribers. Currently, the clearing is done on a T+3 basis, that is the contributions from subscribers is to be invested within three days of the receipt of the money. The maximum prescribed limit for the clearing cycle is one week.
This is quite unlike the process in mutual funds where investors can participate in the market on the same day. In the case of mutual funds, investments are time-stamped and sent to asset management companies (AMCs) before the market closes, so the investor is allotted the NAV of that day. While the physical delivery of the forms can delay the actual investment even in the case of mutual funds, most intermediaries now use a software (called FinNet, launched by CAMS and Karvy Mutual Funds Services) which reduces the time and cost involved in submission of forms.
"As mutual funds are collecting the money and investing it themselves, it's possible to give the net asset value (NAV) of that day. But ours is an unbundled architecture, so it's not possible to invest on the same day," Mrs Nair explained.
Prabu Anand K, a Pondicherry based independent financial advisor has suggested that there should be a cut-off time for investment of the money, as is the case with mutual funds. "All contributions must be time-stamped and tracked. This will ensure that neither PoPs nor the record keeping agency can play about with the funds of subscribers, and that the investments would be updated in the account of the subscriber immediately," he said.
An official with a fund manager of the NPS pointed out that there is a penalty for PoPs, if the subscriber's account is not credited within a week. "If it is cash then it should happen on the same day. It depends on the clearing cycle of a city. Normally outstation cheques should not be submitted for subscription," the official said.
Contributions to the NPS are accepted through Allahabad Bank, Axis Bank, Central Bank of India, Citibank, Computer Age Management Services (CAMS), ICICI Bank, IDBI Bank, IL&FS Securities Services, Kotak Mahindra Bank, LIC, Oriental Bank of Commerce, Reliance Capital, State Bank of India, South Indian Bank, Union Bank of India, all of which have been designated as PoPs by PFRDA.
New Delhi: Cities in emerging markets like India are likely to offer the biggest commercial opportunity for businesses worldwide in the coming decades, reports PTI quoting a study by the Boston Consulting Group (BCG).
According to the report, the surge in the number and size of emerging market cities, alongside the burgeoning middle class households within them, is creating both new opportunities and challenges for companies.
"The 717 emerging market cities that currently have populations of more than five lakh people, and additional 371 cities that will reach this size by 2030, will constitute the biggest commercial opportunity in the world in the coming decades," the report said.
With dramatic improvements in lives of emerging-market urban residents, the spending power in such cities is increasing rapidly, opening up new avenues for companies.
Emerging market cities may account for 30% of the global private consumption by 2015, creating vast opportunity for businesses to sell their products, it stated.
"Executives tend to focus on 'megacities' of emerging markets, when they need to be shifting their attention to the 'many cities' - the large number of smaller cities that constitute the bulk of future urban-market demand across the emerging markets," BCG senior partner David Michael said.
The massive growth in size and number of emerging market cities would fundamentally change the competitive landscape in many industries, it added.
One-third of the world's population - 2.6 billion people - live in emerging-market cities and by 2030 the number is likely to increase by an additional 1.3 billion.
In contrast, cities in developed markets would add only 100 million new residents in the next 20 years. "Companies need to track and manage the number of cities in which they have a strong presence, not simply the number of countries," Mr Michael added.
Moreover, emerging market cities would need better housing and infrastructure - most urgently, transportation, water, sanitation and electricity.
Driven by huge portion of the demand from Brazil, China, India and Mexico, emerging markets would require an estimated $13.8 trillion in housing investment from 2010-2030.
"The massive infrastructure development needs across so many emerging market cities dwarf anything that the world has seen before," the report stated.
The company faces stiff competition from existing players and is yet to clock any revenues; the promoter group has a number of pending litigations against it and high debt remains a concern
Incorporated in 2006, Jharkhand-based steel manufacturer Electrosteel Steels Ltd (ESL) is entering the capital market to raise between Rs368.77 crore at the lower end of the price band and Rs405.65 crore at the upper band through a 100% book building issue. The company is promoted by Electrosteel Castings Ltd (ECL).
ESL currently procures 30% of its coking coal requirement from its Parbatpur (Jharkhand) unit and 70% from other sources.
The company is setting up a plant near Siyaljori village in Bokaro district of Jharkhand. The proposed plant will have a blast furnace, basic oxygen furnace, billet caster and will utilise the hot rolling route. It will produce 1.2 million tonnes per annum (MTPA) of long steel products, comprising 0.5MTPA of 5.5-12.0mm diameter wire rods in coil form and 0.7MTPA of reinforcement bars in straight lengths and bundled in the range of 8-32mm and plain rounds up to 60mm diameter. The plant will have a 0.33MTPA DI (ductile iron) pipe production facility in the same complex and will be provided with hot metal from the blast furnaces. The plant will also have production facilities for 0.27MTPA of commercial billets and 0.40MTPA of pig iron.It has acquired 1,804.70 acres of land for the proposed plant for future expansion plans.
Promoter ECL has four manufacturing facilities of which two are located at Khardah and Haldia in West Bengal, one at Elavur in Tamil Nadu and a coal washery plant at Parbatpur in Jharkhand.
Price: Rs10-Rs11 per share
No of Shares: 3,68,772,000 equity shares with a green-shoe option of up to 15% of the issue
Issue Size: Rs368.77 crore-Rs405.65 crore
Issue Duration: 21st September-24th September
Listing: BSE and NSE
IPO rating: Three, average fundamentals (CARE)
Book Running Managers: Enam Securities Pvt Ltd, SBI Capital Markets Ltd and Edelweiss Capital
Pre-Issue Promoter and Promoter Group Holding: 38.70%
Post Issue Promoter and Promoter Group Holding: 34%
Post Issue Equity Capital: Rs2,034 crore
P/E ratio: NA (Company has not posted any profits)
Highest in the industry: 55.3
Lowest in the industry: 5.4
Average industry (Composite) P/E: 10.80
There are 61 litigations against the company's promoters with Rs912.38 crore riding on these cases. On 24 December 2009, SEBI passed an order imposing a penalty on promoter company ECL and the individual promoters of ECL for violating insider trading rules. The company procures equipment from China for which it appoints Chinese contractors for integration. However, due to the visa guidelines issued by the Indian government, many of these Chinese contractors had to leave the country causing a slowing down of the projects.
As a new entrant, ESL faces fierce competition from existing players in the DI pipes industry like ECL, Jindal Saw, Tata Metaliks and Electrotherm, which have market share of 53%, 27%, 13% and 7% respectively.
In the steel production territory, it competes with both private and public sector companies. For the financial year 2009 public sector companies such as SAIL, RINL, etc. had a market share of 28% while private sector companies such as Tata Steel, JSW Steel, JSPL etc. had a market share of 72%.
The company has not yet commenced commercial activities and hence has not posted any revenues so far. Commercial operations of the company's projects are not scheduled to commence until 1 October 2010.
The company requires various licenses from central and state governments to commence its projects. It needs environmental approvals from the Ministry of Environment and Forests, and chimney height approvals from the Ministry of Defence and Ministry of Civil Aviation, and ESL is waiting for a mining lease license approval from the Ministry of Environment and Forests for its proposed iron ore mine at Kodolibad, Jharkhand.
ESL was promoted by its promoter ECL to set up a 2.2 MTPA integrated steel and ductile iron spun pipes project in Jharkhand. In order to focus on backward integration, ECL has set up ESL for implementing the integrated steel and DI pipe plant. The company's promoter ECL will supply iron ore and coking coal to ESL on a cost plus 20% basis for a period of 20 years.
The company' promoter ECL is in the business of manufacturing CI Spun Pipes for over four decades and DI Pipes since the last 15 years. ESL's integrated steel plant is located in Siyaljori in Bokaro district (Jharkhand), just 22 km from Bokaro. This belt has a supply of low-cost manpower pool and raw materials, such as dolomite, quartzite, ferro alloys and additives, which reduces its transportation and procurement costs.
The company made a pre-IPO allotment to Franklin Templeton Private Equity Strategy of 5.58 crore shares at a price of Rs10. IL&FS Financial Services too bought 7.50 crore shares in two tranches in the year 2009 at the same price.