BQuick On Nov. 15: Top 10 Stories In Under 10 Minutes
This is a roundup of the day’s stories in brief.
1. Committee Of Creditors Reigns Supreme
The distribution of claims in the Essar Steel Ltd. insolvency matter will take place according to the resolution plan by winning bidder ArcelorMittal, said the Supreme Court today, setting aside a previous decision by the National Company Law Appellate Tribunal which sought proportionate distribution among different classes of creditors.
- In doing so, the court restored primacy to CoC decisions, as has been the case with insolvencies so far under the Insolvency and Bankruptcy Code, 2016.
The NCLT/NCLAT cannot interfere with the commercial decisions taken by the CoC.Supreme Court Judgment
- The adjudicating authority can send the resolution plans back to the CoC to be complied with the guidelines, but it cannot change the plan, the Supreme Court clarified.
- Today’s ruling also paves the way for Essar Steel's insolvency process, which has been running since Jun 2017, to be finally completed.
Read more about the implications of today's judgment by the Supreme Court.
The financial creditors of Essar Steel, which will be acquired by ArcelorMittal, would receive over 90 percent of their claims following the Supreme Court’s verdict on the insolvency case of the bankrupt domestic steelmaker.
- Secured or financial creditors would receive nearly Rs 42,000 crore—92 percent of the claimed amount.
- For banks, the verdict would come as a relief as they had made provisioning as high as 50-100 percent against their exposures to Essar Steel.
- The lenders, which faced problems such as persistent asset quality issues and low provisioning coverage ratio, may use the write-back to provide for other stressed assets or boost its provisioning coverage ratio.
Here’s a look at the breakup of the amounts each bank would recover.
2. A New Framework To Deal With Stressed Financial Firms
The Indian government has announced a framework for resolution of stressed financial institutions, in the absence of a full-fledged law to deal with insolvency of banks and non-bank lenders.
- The new rules, issued under the Insolvency and Bankruptcy Code, 2016, will apply to systemically important financial service providers other than banks.
- The rules come against the backdrop of emerging strains across non-bank lenders.
- While some of these lenders, such as Dewan Housing Finance Corporation Ltd., have defaulted on their dues, resolution has proved to be difficult as the Insolvency and Bankruptcy Code does not apply to financial institutions.
- A Financial Resolution and Deposit Insurance Bill, which has been in the works for a few years, is yet to be finalised.
The rules will act as an interim resolution framework. Here's the process that has been laid down.
3. Insurance On Bank Deposits To Be Increased
Finance Minister Nirmala Sitharman on Friday said the government will bring bills on raising insurance cover on bank deposits from the current Rs 1 lakh and regulating multi-state cooperative banks.
- These bills will be brought during the Winter Session of Parliament starting on Monday, Sitharaman told reporters in New Delhi.
- The move assumes significance in the wake of a fraud in Punjab and Maharashtra Cooperative Bank affecting lakhs of customers who are facing difficulties in withdrawing their entire money due to restrictions imposed by the Reserve Bank of India.
- At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and Credit Guarantee Corporation.
4. Sensex’s Third Week Of Gains, S&P 500 Heads For Another Record
India stocks advanced, with the benchmark index completing its third week of gains, on investor expectation that lower borrowing costs will boost the outlook for corporate profits.
- The S&P BSE Sensex advanced 0.2 percent to 40,356.69 in Mumbai, clocking its longest weekly winning streak since the end of September. The index had climbed as much as 0.9 percent earlier in the session before a late sell off.
- The NSE Nifty 50 rose 0.2 percent to end at 11,895.45.
- The broader markets represented by the NSE Nifty 500 Index rose 0.18 percent.
- The market breadth was tilted in favour of sellers.
- Six out of 11 sectoral gauges compiled by NSE ended higher.
Follow the day’s trading action here.
India’s economic growth indicators have flashed red and earnings estimates were revised downwards in the last few quarters. But market veteran Adrian Mowat of CLSA expects recovery in select cyclical sectors.
Here’s what he thinks the challenge is for India and the pockets where value can be created.
Stocks rose and Treasuries fell after an American official hinted that the U.S. and China are close to locking down a partial trade deal. The dollar declined.
- The S&P 500 headed for another record and its sixth weekly gain in a row, which would be the longest streak in two years, after White House economic adviser Larry Kudlow said late Thursday negotiations between the two countries were coming down to the final stages.
- The Bloomberg Dollar Spot Index dipped 0.2 percent.
- Gold fell 0.4 percent to $1,467.40 an ounce.
Get your daily fix of global markets here.
5. Singh Brothers Held Guilty Of Contempt
The Supreme Court has held Fortis Healthcare Ltd.'s founders--Malvinder Singh and Shivinder Singh--guilty of contempt of court and said it could start similar proceedings against the company.
- This effectively halts IHH Healthcare Bhd.’s open takeover offer to Fortis shareholders that would have brought its holdings in India’s second largest hospital company above 50 percent.
- IHH is already Fortis’ largest shareholder with a 31 percent stake.
- The court said contempt proceedings have been initiated against Fortis for violation of its December 2018 order to maintain status quo on the deal with IHH.
- Daiichi had argued that certain transactions between IHH and Fortis violated the court’s directions.
Also named in the contempt verdict was Indiabulls Housing Finance. Find out why.
6. Sitharaman Rules Out Quick Recovery For Economy
India’s Finance Minister Nirmala Sitharaman said it was too early to say if the slowdown in the economy had bottomed out.
- Companies are planning new investments after $20 billion worth of corporate tax cuts announced in September, Sitharaman told reporters in New Delhi.
- Actual investments may take some time to materialize, she said.
- Sitharaman said it’s a bit too soon to say whether Asia’s third-largest economy would be able to stick to its fiscal deficit targets.
Asset sales are proceeding at good pace, the finance minister added.
India’s trade deficit widened less than estimated last month, as a third-straight month of decline in exports offset a sharp plunge in imports amid weak global demand conditions.
- The gap between exports and imports was at $11 billion in October from $10.9 billion in September.
- That was lower than the median estimate for a $11.9 billion deficit in a Bloomberg survey of 20 economists.
- Imports declined 16.3 percent from a year ago to $37.4 billion, compared with a 13.9 percent fall in September, showing muted demand in the domestic economy.
- Exports fell 1.1 percent to $26.4 billion, against a 6.6 percent drop this previous month.
The numbers are the latest in a slew of data that points to weaker economic activity.
7. Airtel, Vodafone Idea And The Rs 60,000-Crore Hole
The very existence of India’s leading telecom service companies is in question. The two largest telecom operators by active market share were driven deep into debt after the nation’s richest man cleaved into the sector with his upstart a few years ago. An adverse ruling by the Supreme Court brought them to the edge of the cliff.
- Vodafone Idea Ltd. and Bharti Airtel Ltd. will have to pay the government Rs 44,150 crore and Rs 34,260 crore, respectively, after the Supreme Court ruled last month that telecom operators will have to include non-core revenue to calculate levies.
- That will further strain the two companies’ balance sheets as their free cash flow won’t be sufficient to repay the amount.
- The two operators would either have to raise more debt or equity financing or sell assets to repay dues.
Here’s how they could pay off their dues.
8. Sanctity Of The Debt Contract And Tough Lessons For Indian Promoters And Lenders
A bad loan clean-up that began in 2015 has claimed many casualties across the Indian business landscape, writes Ira Dugal.
- Along the way, some of India's most storied promoters—the Dhoots, the Gaurs and the Singals—have lost their businesses. The Ruias joined the list today.
- Any perception of a ‘divine right to stay in control’, as Raghuram Rajan had termed it, has been shaken over the last few years.
- But the idea was less about individuals and more about setting right some of the wrongs that had seeped into the system.
9. Pawars And Thackerays: Bitter Rivals And Best Friends
Some friendships and promises are above political ideologies and party differences, writes Sujata Anandan.
- Not many know that Sharad Pawar sat in on discussions that led to the formation of the Shiv Sena in 1966 along with Bal Thackeray.
- In 2006, when Pawar was seeking to send his daughter Supriya Sule to the Rajya Sabha, Thackeray had asked, “Why have you not sought my help?”
- When Thackeray was ailing in 2012, he is said to have extracted a promise from his old friend that Pawar would look out for his son and political heir.
So it is Pawar’s turn now to come to the rescue of his late friend’s son and the party he helped set up half a century ago.
10. Inside World’s Most Watched YouTube Channel
When it comes to entertainment, Bhushan Kumar has a better claim on knowing what matters to India’s 1.3 billion people than almost anyone. The head of T-Series, the country’s largest record label, he’s the custodian of a catalog of Bollywood soundtracks, Tamil pop tunes, and devotional music that accounts for a huge proportion of listening in the most music-crazy country on the planet.
- Since music and film are inextricably linked in India—almost all major hits come from soundtracks, and elaborate dance routines are the centerpiece of movies in almost every genre—Kumar is also a crucial cinematic tastemaker.
- T-Series’ in-house production arm has put out more than a dozen releases in the past year, including Kabir Singh, the second highest-grossing Bollywood title of 2019, with about $39 million in box-office revenue.
- In February the company achieved another milestone: It became the world’s most popular YouTube channel, dethroning Swedish gamer-troll PewDiePie.
- The ascent of T-Series, which has 117 million subscribers to its primary feed, caught many off guard.
- No professional media producer, let alone one from Asia, had ever held the top spot.
T-Series built an online empire from Bollywood. Now it has to survive Netflix.