UBI is considering takeout financing for some of its infrastructure loans
Union Bank of India (UBI) plans to go for takeout financing for some of its loans in the infrastructure segment. The public sector bank is considering going for the takeout financing scheme offered by India Infrastructure Finance Company Limited (IIFCL).
Moneylife had earlier reported on how takeout financing (under the ECB route) is expected to benefit foreign lenders more. (See: http://www.moneylife.in/article/8/7867.html).
According to well-placed sources from the bank, the public sector undertaking is seriously considering the takeout financing model.
"The bank plans to opt for the takeout financing model. We will opt for this model to remove those infrastructure loans from our books, for those projects which have been operational for the past three years," said an official from UBI.
The official refused to share further details on what the total amount of loan under the takeout financing route would be.
In April 2010, IIFCL had been allowed to lend to infrastructure projects under the takeout financing norms.
Under the new process, a tripartite agreement is required to be signed between IIFCL, the lender (in this case UBI) and the borrower (the infrastructure development company developing the project).
This financing model could be extended to projects which have achieved financial closure and have a residual debt tenor of at least six years.
Thus, UBI would opt for this model for some of its loans which it has granted to infrastructure projects - which have been operational for around three years now.
A number of banks and banking experts believe the takeout scheme will benefit late entrants. The common line of thought is that the risk and delays involved in the initial years of the infrastructure funding will be borne by the first lender or the bank.
However, this UBI official differs and says that that takeout financing will benefit the bank too.
"As per the guidelines this model will be allowed only for those projects which have been operational for at least three years. Thus, the domestic bank would have been associated with the project for six years (assuming three years is the average construction period for any infrastructure project). It is a good time period for the domestic bank to benefit from the funding," said the official. He further added, "Most importantly, it will help reduce the bank's asset-liability mismatch."
Under the guidelines issued for IIFCL's takeout financing scheme, this kind of lending could be extended to projects involving development of road and bridges, railways, seaports, airports, inland waterways and other transportation projects. This scheme will also benefit projects involving power, urban transport, water supply, sewage, solid-waste management and other physical infrastructure in urban areas like gas pipelines, infrastructure projects in Special Economic Zones (SEZs) and international convention centers along with tourism infrastructure projects.
New Delhi: Global ratings agency Standard & Poor's (S&P) today raised Tata Motors' credit ratings to positive citing improved performance by auto maker's premium brands Jaguar Land Rover, reports PTI.
The upgrade to 'B+' from 'B' comes few days after Tata Motors clocked a consolidated net profit of Rs1,988.73 crore for the quarter ended 30th June on the back of strong sales in the domestic market and good show by Jaguar and Land Rover (JLR).
"We raised the rating on Tata Motors to reflect the sustained improvement in the operating performance of JLR and the company's India operations over the past year," S&P said in a statement.
The improvement in Tata Motors' operating performance, along with the company's debt reduction measures, has improved the company's cash flow protection measures and liquidity position, it said.
S&P also raised the issue rating on the auto giant's senior unsecured notes to 'B+' from 'B'.
The 'B' ratings refer to the entity being "more vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments" while a plus (+) or minus (-) show relative standing within the major rating categories.
"Tata Motors' financial risk profile has improved, although it remains aggressive. Better operating performance and debt reduction measures aided the improvement in the company's financial risk profile," said.
During the last fiscal, Tata Motors' consolidated net profit had touched Rs2,571.06 crore against Rs2,505.25 crore loss previous fiscal.
The auto giant had reported total sales of 6,67,971 units during 2009-10 against 5,06,421 units in the previous fiscal.
During the first quarter of this fiscal, Tata Motors reported a consolidated net profit of Rs1,988.73 crore as against a loss of Rs328.78 crore in the year-ago period.
In the domestic market, sales of passenger vehicles, including Fiat and Jaguar and Land Rover, grew by 56% to 77,858 units, while domestic commercial vehicles sales during the first quarter grew 38.7% to 100,186 units.
During the quarter, JLR business reported a profit before tax of 233.82 million pounds (Rs1,590.25 crore).
Wholesale volumes for JLR in the quarter were 57,153 units compared to 35,947 units in the year-ago period, while retail sales too improved favourably in the quarter.
"The positive rating outlook reflects our expectation that the company will maintain its improved operating performance, especially at JLR, thereby further improving its financial risk profile," S&P said.
The regulator has asked fund houses to furnish all investor-related documents by 22nd November which were opened via online distribution channels
Asset management companies (AMCs) will not be allowed to open any new accounts if they do not possess all investor-related documents with them. A majority of these accounts mainly belonged to online distributors who were not ready to share investor details with AMCs.
"Online distributors were not disclosing the customers' identity and were merely saying that these transactions were happening at their level. They said they would do business based on power of attorney (PoA) but the Securities and Exchange Board of India (SEBI) did not agree. So now, SEBI is forcefully implementing the norm by involving trustees. This is a good move by SEBI. Know your customer (KYC) norms are mandatory for AMCs and it cannot be masked under a distributor's identity," said a top official from a fund house.
According to industry players, some distributors were executing mutual fund (MF) trades by misusing PoA signed by investors.
"This is essentially for people who are selling MFs through online channels. They have to comply with the Prevention of Money Laundering Act (PMLA). For offline clients, we are anyway filling up the application forms and taking all details.
SEBI is doing it ensure that no suspicious money is coming into MFs. Investors can also do transactions over the phone, so PoA is required in that case. So whether the PoA is valid or not also needs to be checked," said K Venkitesh, national head (distribution), Geojit BNP Paribas.
Moneylife had reported on 29 July 2010 on how the Financial Intelligence Unit (FIU) had revised the guidelines for Suspicious Transaction Reports (STRs) for MFs.
SEBI in its 11 December 2009 circular had mandated fund houses to halt commissions paid to distributors who did not have complete investor-related documents. Distributors were supposed to submit all investor-related documents to AMCs. Moneylife had reported on 22 March 2010 on how distributors were unable to submit KYC documents to AMCs.
The SEBI circular states, "It appears that all the investor-related documentation is not available with the AMCs. It has been observed that due to such incomplete documentation, investors' rights to approach the AMCs directly are restricted and investors are forced to depend on the distributors for executing any financial or non-financial transactions."
AMCs will be allowed to open a new account only when they have all
investor-related documents like PAN, KYC, specimen signature and PoA. The regulator has asked the trustees of AMCs to submit a confirmation report by 22 November 2010. Existing accounts will have to be updated by 15 November 2010.