Trade Timings

The truth of the matter is that each stock exchange is principally acting in its own interests. The interests of its powerless stakeholders can always be taken care of by time and their lack of collective will.

Competitive one-upmanship is not uncommon in business. The telecom wars being currently fought out are a good example. But, when this happens in a duopoly like the stock exchange business, it makes one wonder why. The recent competitive rush to increase trade timings played out between the BSE and the NSE is an exposition of how management processes work and the impact they have on stakeholders’ interests.

The genesis of this problem lies in the changed structuring of the stock exchanges and the diminishing hold of stakeholders over them. Stock exchanges were traditionally collectively managed by brokers. That was before the launch of the NSE. The NSE was established as a third-party service provider. It was not owned by brokers. As a self-regulatory organisation, the exchange has unrestricted ‘leverage’ over its members. The members have to ultimately bear in mind that it is the exchange which they will have to deal with on a day-to-day basis. The exchange knows this only too well and has always kept its members almost like a subjugated and subservient community. ‘Remember, we audit you’ is the unstated message from the NSE to its members.

The decision-making process of the NSE has therefore been centred on its ability to keep SEBI on the right side of what it does. The brokers’ views have not bothered the management of the stock exchange as long as they could take the regulator along. This mindset has dominated all that the NSE has done in its history and its latest decision is no different. The BSE has copied the NSE and corporatized itself over the years. Today, its professionals guide a paranoid board and a sense of extreme desperation pervades all they do. The BSE's attempt to play catch up with the NSE in the F&O business has triggered this rash decision spree. 

More trading hours should normally mean more business. Higher brokerage incomes should therefore be the most expected outcome from this move. More business means bigger earnings for the stock exchanges. Maybe the stock exchanges will go public shortly. Needless to say, the professional executives will be given lucrative ‘options’ to benefit from the listing. ESOPs will emerge as the key driver of executive compensation. The decision-making process for the extension of timings seems driven by this imaginary growth paradigm. The stock exchange whose revenue model works like a ‘toll’ has everything to gain and little to lose from longer hours. It is a no-brainer that this move benefits them in good times with very limited downside in bad times.

Let us see how this move will impact other stakeholders like the dealers who work long hours and the back-offices which are already stretched. This extension won’t stop here. There is more bad news waiting for them.

From the brokers’ viewpoint, these are good times for the markets. But, one should not assume that good times will last forever. What needs to be factored in is that there will be bear markets when costs will remain fixed and incomes will fall.

The outcome will ultimately result in higher costs to brokers, greater pressure on smaller entities, closure of the smaller brokerages, consolidation of the broking industry and greater share of the overall business for larger brokerages.

Cost increases will ultimately need to be passed on. It is quite evident that brokerage fees will rise. Transactions costs for the retail investor will increase.

But all this hardly matters to the stock exchange. For, the truth of the matter is that the exchange is principally acting in its own interests. The interests of its powerless stakeholders can always be taken care of by time and their lack of collective will.

One last confession from me in conclusion: While I was writing this piece, I forgot to think about how the investor benefits. But I'm not the only one to do so. I have the NSE and the BSE for company.

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    Suzlon repays $780 million acquisition loan

    Suzlon repaid the $780 million debt through the proceeds from a 35% stake sale in Belgium\'s Hansen Transmissions and a new five-year dollar-denominated loan of $465 million from SBI.

    Wind turbine maker Suzlon Energy has announced that the company has repaid its entire outstanding acquisition loan facility of approximately $780 million. This repayment has helped the company to reduce its gross debt by approximately 15% to $350 million.

    However, it has hardly made any difference to the stock price. On Friday, the scrip closed at Rs82, down about 1% from the previous day’s close after opening at Rs83.20 and hitting a high of Rs84.40.
    The repayment was made mainly from the proceeds of a partial stake sale in Hansen Transmissions International NV, along with a new five–year US dollar-denominated loan of $465 million from the State Bank of India (SBI). As per the company’s announcement, the $465 million loan from SBI provides for a two–year moratorium on repayments of principal as well as a two-year holiday on debt covenants.

    Speaking about the transaction, Supratim Sarkar, vice president, SBI Capital Markets Ltd, said he strongly believed in Suzlon’s long-term business prospects and business model. He also expressed confidence in the company’s potential as an Indian leader in the global wind energy market, especially since renewable energy solutions will gain more prominence in future to mitigate climate change.
    Meanwhile, Suzlon’s chief operating officer Sumant Sinha said this transaction concludes the first phase of the refinancing exercise and it has improved the company’s debt profile, with a debt reduction of 15% or nearly $350 million since September 2009. He said the company would continue to work towards optimizing its capital structure.

    Rothschild is the financial advisor for Suzlon’s debt restructuring programme. SBI Caps was the sole financial advisor on the dollar facility, while for the rupee facility SBI Caps was the global coordinator and lead arranger along with IDBI Bank.

    Recently, Suzlon Energy sold a 35% stake in its subsidiary, Hansen Transmissions, for $370 million, or about Rs1,720 crore, as part of its efforts to reduce debt. Post stake sale, Suzlon\'s shareholding in Hansen declined to 26% from 61%. This is the second divestment of Suzlon\'s stake in Hansen this year, with the firm selling 10% in January to the London-based investment firm Ecofin. Suzlon had bought the Belgium-based Hansen in 2006 for $565 million (about Rs2,656 crore).

    Suzlon Energy\'s order book as on 30 October 2009 stood at Rs8,285 crore, which is 1.15 times its sales of Rs7,235.58 crore for the year ended March 2009, giving strong revenue visibility.
    For the current fiscal year that ends in March 2010, the company revised its full-year sales guidance to a range of 1,900MW to 2,100MW.

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    Mukesh Ambani ranked 5th best CEO in the world

    Mukesh Ambani, the only Indian to feature among the top 50 CEOs, is in the same league as Steve Jobs of Apple, Yun Jong-Yong of Samsung Electronics, Russian energy firm Gazprom\\\'s Alexey Miller and John Chambers of Cisco Systems

    Mukesh Ambani, who heads India\\\'s most valuable company Reliance Industries Ltd (RIL), has been ranked among the top five best-performing chief executive officers (CEOs) in the world by the prestigious Harvard Business Review (HBR).

    Mr Ambani, the only Indian to feature among the top 50 CEOs, is in the same league as Steve Jobs of Apple, Yun Jong-Yong of Samsung Electronics, Russian energy firm Gazprom\\\'s Alexey Miller and John Chambers of Cisco Systems.

    He is also ranked number two among the top 10 emerging market CEOs with Mr Miller at the top.

    KV Kamath of ICICI Bank Ltd is the other Indian in the list of Top 10 Emerging Market CEOs. He is ranked at the ninth spot.

    HBR said it ranked CEOs of large publicly-traded companies in a study conducted over 2,000 CEOs worldwide. The entire group represented 48 nationalities and companies based in 33 countries. It put Ambani in the list of "up-through-the-ranks leaders" along with the Samsung boss.

    "Among the up-through-the-ranks leaders on our list are Yun Jong-Yong, who joined Samsung straight out of college and worked there 30 years before becoming CEO, and Mukesh Ambani, who joined RIL in 1981, when it was still a textile company run by his father.

    "These CEOs may not all be household names, but here\\\'s an objective look at who delivered the top results over the long term," HBR said, ranking Steve Jobs as the top CEO in the world.

    Mr Jobs, it said, delivered a whopping 3,188% industry-adjusted return (34% compounded annually) after he rejoined Apple as CEO in 1997, when the company was in dire straits. From that time until the end of September 2009, Apple\\\'s market value increased by $150 billion.

    He was followed by Yun Jong-Yong, who ran South Korea\\\'s Samsung Electronics from 1996 to 2008. "Yun is an example of a leader who has stayed out of the limelight. During his tenure he capably transformed Samsung from a maker of memory chips and me-too products into an innovator selling digital products such as leading-edge cell phones," said HBR. Mr Miller was at the third spot followed by Mr Chambers.

    HBR said that none of the top three CEOs had an MBA. Mr Ambani and Mr Chambers were the only two in the top five to hold degrees in business administration.

    "CEOs who were promoted from inside the company tended to have stronger performance than those brought in from the outside," said HBR.

    Several CEOs that were "most respected" according to other reviews were nowhere in HBR\\\'s top 50. They include Jamie Dimon of JPMorgan Chase, Satoru Iwata of Nintendo, Sam Palmisano of IBM and Rex Tillerson of Exxon Mobil.

    Many other celebrity CEOs also failed to make the cut. They include Carlos Ghosn of Renault-Nissan, Sergio Marchionne of Fiat, John March of Morgan Stanley, Jeffrey Immelt of General Electric, Daniel Vasella of Novartis and Robert Iger of Walt Disney.

    "Some of these well-known CEOs have not necessarily done poorly; they are just not among the top performers in the world according to the total shareholder return they have delivered so far," HBR said.

    The likes of Jack Welch, Warren Buffett, Larry Ellison and Bill Gates do not find mention in the list as HBR considered CEOs who assumed the job no earlier than January 1995 and no later than December 2007.

    "On an average, the top 50 CEOs increased the wealth of their shareholders by $48.20 billion," it said. They delivered a total shareholder return of 997% during their time in office. That translates into a spectacular annual return of 32%.

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