PFC’s earnings are likely to remain robust: ICRA Equity Research

Given the existing deficit situation and likelihood of continued growth in energy requirements, PFC to emerge as key agency for govt’s power development project

Power Finance Corporation (PFC) is expected to emerge as a key agency for implementation of the government's power development project, according to report by ICRA Equity Research Service. The ratings agency has assigned the Fundamental Grade '4' to the company implying that the company has "strong fundamentals" and the Valuation Grade 'A' implying "signified undervalued" on a relative basis.

PFC, which was set up in 1986, provides loans for a range of activities from generation to distribution, transmission, renovation and maintenance and other related activities. Generation projects constituted around 83% of PFC's loan book as on 31 March 2012, distribution being 4%, transmission 8% and others 6%.

According to ICRA Equity Research, PFC's portfolio registered a robust growth over the past few years on the back of significant investment demand in the power industry. PFC's portfolio has expanded at a five year +CAGR of 24% to Rs1,30,071 crore as on 31 March2012. This share had been declining till FY2011, as during this period banks increased their lending to the sector, however, PFCs share increased in FY2012 from 21% to 22%. Going forward the banking system may not be able to sustain their high pace of expansion in the sector, as several banks are hitting their industry exposure limits. Therefore PFC would be in a position to increase its market share going forward.

Given the existing deficit situation and likelihood of continued growth in energy requirements, ICRA Research expects an incremental capacity requirements of 95,000 MW by end of the XII Five Year Plan (until March 2017) and about 1,80,000 MW by end of FY22, assuming energy demand to grow at 6.5% per annum and loss levels to improve1 steadily.

PFC's large net worth (Rs20,708 crore as on 31 March 2012) has enabled it to take large exposures on projects in the past, which has supported its competitive positioning. Furthermore within the state power sector PFC has permission from the Reserve Bank of India (RBI) to formulate its own exposure norms. Accordingly PFC can lend up to 150% of its net worth to a single state sector utility, against up to 25% of capital funds (Tier 1 and Tier 2) for banks.

However, PFC has observed some slippages in the current financial year and the Gross NPA percentage increased from 0.23% as on March 2011 to 1.04% as on 31 March 2012, primarily on account of slippage in two large accounts-Shri Maheshwar Hydel Power Project(approx Rs700 crore) and Konaseema Gas Power (approx Rs387 crore). Also, given the current concerns with respect to shortages of domestic coal availability and the deterioration in health of state power utilities, asset quality indicators of PFC may deteriorate.

Despite these challenges PFC could still continue to maintain low NPAs because of default escrow mechanism in all cases, possibility of restructuring some accounts and differentiated NPA recognition norms for state government guaranteed exposures. Further, despite such possible deterioration in collections over medium term, eventual losses from state government entities could remain low.


Future Capital sells Myra Mall Management to Providence for Rs97.7 crore

Amid reports the government deferring clearance to Warburg Pincus' purchase of Future Capital, the Kishor Biyani-led company is hiving off its units

New Delhi: Kishore Biyani led Future Capital Holdings Ltd, on Tuesday said it sold its subsidiary Myra Mall Management Company to Providence Educational Academy for Rs97.7 crore, reports PTI.

The company sold 10 lakh fully paid-up equity shares of Rs10 to Jaydev Mody owned Providence Educational Academy, Future Capital said in a filing on the BSE.

Consequently, Myra Mall has ceased to be a subsidiary company of Future Holding Ltd from 9th July, it added.

The sale comes amid reports the government deferred the clearance of Warburg Pincus' purchase of Future Capital, citing that Future Capital must first exit from its wholly-owned real estate subsidiary.

As per the existing regulations foreign investment in real estate is not allowed. However, foreign investors can invest in construction projects subject to strict option such as a three-year lock-in, minimum capitalisation of $5 million for joint venture (JV) and $10 million for wholly-owned subsidiaries, and development of at least 10 hectares of land.

Last month, Future Group agreed to selling 53.67% stake in Future Capital Holdings to US-based private equity Warburg Pincus to raise an estimated Rs560 crore.

As per the share purchase agreement, Warburg Pincus would inject another Rs100 crore into Future Capital Holdings (FCH) and also make an open offer under the takeover code of market regulator SEBI.

Kishore Biyani-led Future Group, whose core retail business formats include Big Bazaar, Food Bazaar, e-zone and Pantaloon, has a debt of over Rs5,000 crore.

Pantaloon Retail holds 55% stake in Future Capital. Earlier this year, Pantaloon Retail had formed a high powered 'review committee' with the mandate to consider various options for realignment and divestments.

As per the SEBI norms, Warburg Pincus will have to make an open offer of 26% to the shareholders of Future Capital Holdings. Open offer provides an opportunity to the existing investors to exit the company.

The board of FCH also approved a preferential allotment of shares to Warburg Pincus worth Rs100 crore.

Future Capital ended Tuesday marginally down at Rs152 on the BSE, while the benchmark Sensex closed 1.3% up at 17,618.


CBI may prosecute offenders without state government’s permission

The proposed law will give statutory powers to CBI specifically to look into corruption cases and prosecute offenders all over the country without the consent of the state governments

New Delhi: Taking a step forward in its fight against corruption, the Indian government is considering a recommendation to give more powers to the Central Bureau of Investigation (CBI) by enacting a law which will empower it to probe graft cases nationwide without the consent of the state governments, reports PTI.

If it comes into being, the proposed law will give statutory powers to the investigation agency specifically to look into corruption cases and prosecute offenders all over the country, highly placed official sources said.

As per the proposal, which is at a nascent stage, the law will be enacted close on the lines of the National Investigation Agency Act, 2008.

Sources said the Ministry of Personnel, Public Grievances and Pensions will soon hold a meeting with Ministry of Law and Justice and certain officials of the CBI to devise a road map for the legislation.

"The government is considering a proposal for giving statutory powers to CBI. Its main thrust is to minimize overlapping powers of state and central government investigating agencies," a senior Department of Personnel and Training (DoPT) official said.

However, the official said "no decision" has been taken by the Ministry on it as yet.

At present, the Central Bureau of Investigation functions under the Delhi Special Police Establishment (DSPE) Act. As per the Act, CBI requires consent from the state governments to probe and prosecute an official working under their control.

The proposal was also discussed by a Parliamentary Standing Committee which had in May this year recommended a legislation giving statutory powers to CBI for the purpose terming it as a "dire need".




5 years ago

A very overdue, welcome and imperative contemplation (as the reported intention is unlikely to materialise). The purpose will, however, not be served and may even be counterproductive until and unless the extra-legal bureaucratic rule of seeking the concerned Minister's sanction (obtained through notings in a file moved upwards from the bottom through inter alia the chain of hierarchy in the central secretariat) proposing action against officers of the rank of JS and above is scrapped simultaneously. This is because, the powerful top bureaucracy never approves of any action against its "brother/sister"officers in the IAS-CSS and other services, depending of course on the subject's influence and clout. The moment a file is "moved" downwards first by the topmost civil servants for processing of a proposal, everyone down the chain comes to know of the "information" and even a child knows what follows. The same rhing happens with a proposed search action under the income tax act which has stipulated some similar provision, in addition to the internal mandate that, no search shall ever be mounted without the clearance of the "ministry" if the subject is a person of "eminence" (read: influential person with huge clout) person in the field of any profession like accountancy or law, medicine, and the like (including films, art and culture, etc.) politics, "social" service (sic), philanthropy (!), top bureaucrats and, of course, powerful business magnates/captains of industry.
The very purpose of investing CBI, IT Deptt., Customs & Central Excised, DRI, etc., with the powers of search (which must invariably have an element of surprise) has been deliberately nullified by the unholy nexus in the "ruling elite".

Moreover, if the laws permit the accused the leeway to be able to drag the proceedings for years, by dint of the political and money power at their disposal and thus able to buy the best legal brains to thwart the anti-corruption cases in the cases of disproportionate assets (including many legal activists in the latest anti-corruption movement mounted by some organisations). This delaying legal exercise needs to be tacked and with honest intentions--within the limits of honesty permissible in political and bureaucratic compulsions though.

I hope, the CBI, CBDT, CBEC, SFIO, etc., will ponder over these points. If this is not possible, there is no purpose whatsoever to maintain these organisations merely for public consumption and ostensibly to comply with international "conventions".

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