DBS loses Rs83 crore in its four-year affair with Cholamandalam

The foreign entity had spent Rs213 crore in June 2006 for a 37.5% stake in the Murugappa Group’s non-banking finance company

Development Bank of Singapore (DBS) had spent Rs213 crore to buy 37.5% stake in the Murugappa Group’s non-banking finance company, Cholamandalam Investment and Finance Company Ltd, in 2005-06. Yesterday it exited from the joint venture at Rs129 crore, making a straight loss of Rs83 crore.

This is not the first time when a foreign company which has jumped into the Indian financial sector has burnt its fingers. Earlier, mutual funds companies (like Threadneedle), broking companies (James Capel, Peregrine) and banks (BNP Paribas) have entered into India and exited at a loss. Some of them like BNP Paribas find India irresistible and have come back again.

According to a news report in 2005, DBS announced that it would spend about Rs228 crore to acquire 37.5% stake in the company. It actually acquired 142,21,985 shares at Rs150 in June 2006 as per its filing to the Bombay Stock Exchange. It was a strategic stake sale for Cholamandalam as well. The Murugappa Group was planning to gradually exit the financial services business and focus on fertilisers and other manufacturing activities.

A few months ago, both DBS and Cholamandalam sold their stakes in DBS Cholamandalam Asset Management to L&T Finance for Rs45 crore. It remains to be seen whether the Murugappa Group would like to invite another foreign company into Cholamandalam Finance for another round of musical chairs.

The music starts during a market boom when foreign companies suddenly focus on India as the next hot destination. DBS partnered with Cholamandalam to grow the personal finance business, asset management business and also the banking business for which it launched 10 branches. After the collaboration, the foreign partner was expected to grow the financial services business by using its expertise in retail loans. But in a script that plays again and again, DBS on Tuesday announced that it is exiting from the joint venture with Murugappa in Cholamandalam. The reason was major delinquencies in the personal loan portfolio. In September 2008, after a huge hit to its portfolio, it had decided to stick to vehicle financing and loans against shares. In May 2009, the company was forced to create a provision of Rs200 crore against bad loans. Almost 75 branches across India were closed down and 200 employees were laid off.

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    R Balakrishnan

    1 decade ago

    The main issue here is that the Murugappa family (which tries to publicly claim that the businesses are professionally managed) bought back the stake not with own money, but with money from a listed company, Tube Investments! Corporate governance zindabad. Dining table management ki jai ho!

    India offers stakes in petrochemical plants to Kuwait

    State-run oil companies are scouting for partners for technology and marketing support, and are seeking fresh sources for supply of crude oil

    Moving beyond the supplier-buyer relationship, India has offered Kuwait a stake in Oil and Natural Gas Corp’s Rs12,440-crore petrochemical plant at Dahej in Gujarat and Indian Oil Corp’s (IOC) proposed chemical unit at Paradip, reports PTI.

    The oil-rich nation's national oil firm Kuwait Petroleum Corp (KPC) has time and again spurned offers for stakes in Indian refinery projects as it, like its Saudi counterpart Saudi Aramco, wanted auto fuel distribution rights—a proposition not possible considering only State-owned firms qualify for government subsidies.

    Petroleum minister Murli Deora met his Kuwati counterpart Sheikh Ahmad Al-Abdullah Al-Ahmad Al-Sabah on the sidelines of the XII International Energy Forum here yesterday and offered a stake in the mega-petrochemical plants being built on the west and east coasts, said Sunil Jain, joint secretary in the petroleum ministry.

    ONGC is keen to get an overseas major who can either bring technology or marketing support for its Dahej plant that will be built by February 2012.

    IOC has been for long looking at equity partners in companies like Saudi Aramco and KPC, who can supply crude oil to the Paradip refinery project in Orissa.

    New Delhi is looking at Kuwait and other oil-rich nations in the Gulf region for meeting crude oil demand from India’s new refinery plants. India's refining capacity is to increase from 180 million tonnes (MT) to 250MT by 2012.

    Prime minister Manmohan Singh’s recent visit to Saudi Arabia had yielded an assurance from the world’s largest oil exporter for increasing crude supplies from 25.5MT to 40MT a year by 2012.

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    Petrol, diesel to cost up to 50 paise more in 13 cities

    Various oil companies had invested Rs40,000 crore in putting up facilities to produce cleaner fuel and the prices have been increased to make up for the cost

    Thirteen big cities, including the four metros, will switch to cleaner 'Euro-IV' grade motor fuel from tomorrow, on account of which consumers would have to shell out up to Rs 0.50 a litre more.

    Petrol prices in Delhi will go up by Rs0.50 per litre to Rs 47.93 a litre and diesel by Rs0.26 to Rs38.10 a litre on account of supply of the cleaner Euro-IV fuel, a government official said, but did not wish to be identified.

    Thirteen cities, including Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Bangalore, Lucknow, Kanpur, Agra, Surat, Ahmedabad, Pune and Sholapur will move from Euro-III grade fuel to Euro-IV from tomorrow. Rates will vary from city to city depending upon local taxes.

    The rest of the country will switch from Euro-II specification fuel to Euro-III in phases, beginning with Goa from tomorrow. Sale of Euro-III grade will be phased over the next five-six months.

    Euro-III petrol will cost Rs 0.26 a litre more and same grade diesel Rs 0.21 per litre, the official said, adding that the rates will differ from city to city.

    Prime minister Manmohan Singh, who was approached by the the petroleum ministry for clearance, had yesterday approved the price hike.

    Oil companies had invested Rs40,000 crore in putting up facilities to produce cleaner fuel and the prices have been increased to make up for the cost.

    This will be the third hike in diesel rates for Delhi in less than a month and the second for petrol. Petrol prices were raised by Rs2.71 and diesel by Rs2.55 a litre from 27th February as finance minister Pranab Mukherjee hiked excise and customs duties. Diesel rates went up by Rs2.37 on 23rd March  when the Delhi government raised VAT on the fuel.

    Euro-IV grade auto fuel confirms to European emission standards that define acceptable limits for vehicle exhaust emissions for member states of the European Union. It is less polluting since it restricts the presence of sulphur in the fuel.

    The official said that oil firms could not have absorbed the cost of producing cleaner fuel as they lose about Rs250 crore per day on selling auto and cooking fuel below cost. Retailers Indian Oil, Bharat Petroleum and Hindustan Petroleum currently lose Rs6 per litre on petrol, Rs4.06 a litre on diesel,
    Rs16.91 per litre on kerosene and Rs267.36 per 14.2-kg LPG cylinder.

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