GVs News Letter-14th Oct-12

14 Oct, 2012, 10.40AM IST, PTI

Suzlon (CMP=15.9) shareholders' wealth plunges by Rs 4,100 cr in a year

Investors in debt-laden Suzlon Energy saw their wealth erode by a staggering Rs 4,100 crore in less
than a year, as value of the wind turbine maker's shares more than halved from its 52-week high of
Rs 39.10.
Shares of Suzlon Energy, which has failed to get more time to repay overseas debt worth USD 221
million, has taken a severe beating in the past many months.
The scrip that touched the 52-week high of Rs 39.10 on October, 2011 has since then tumbled to
close at Rs 15.90 on October 12, 2012 on the BSE.
The steep slide in value of Suzlon shares has resulted in investors' wealth plunging by Rs 4,123 crore
in a year.
While the company's market capitalisation currently stands at Rs 2,826 crore, it was valued at Rs
6,949 crore when Suzlon shares touched 52-week high last year.
The price of Suzlon shares reached a 52-week low of Rs 14.75 on August 31 this year.
One of the world's largest wind turbine makers, Suzlon is grappling with high debt levels, sluggish
market conditions and stiff competition in recent times.
On Thursday, Suzlon scrips plummeted over five per cent in intra-day trading in the wake of
bondholders rejecting a proposal to extend the time to repay USD 221 million debt.
The shares slumped over five per cent to Rs 15.70 before paring the losses to close at Rs 16.20, still
down 2.11 per cent on that day. On Friday, it shed another 1.8 per cent.
The wind turbine maker has a debt burden of USD 2.2-2.3 billion. Suzlon is one of the major Indian
companies to default on debt obligations. The company's Foreign Currency Convertible Bonds (
FCCBs) worth USD 220.8 million (about Rs 1,172 crore) were maturing on October 11 and the
company was hoping to get bondholders' nod for more time to repay the debt.
Suzlon had issued USD 200 million Zero Coupon Convertible Bonds and USD 20.8 million 7.5 per cent
Convertible Bond. The company on September 18 had sought extension for redeeming these bonds.
"We are continuing our engagement with bondholders and expect to have an acceptable solution at
the earliest," Suzlon Group Chief Financial Officer Kirti Vagadia had said on Thursday.
Regarding bondholders' refusal to extend repayment period, Ambit Capital said in a report that it
does not bode well for the company's financial position and hence is negative even for the equity
shareholders.
Meanwhile, State Bank of India, which has a total exposure of Rs 3,500 crore to Suzlon, had said the
entity should look at leveraging the balance-sheet of its German subsidiary REpower.
Suzlon posted a loss -- after shares in associates's profit and minority interest -- of Rs 848.97 crore at
the end of June 2012 quarter.
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GVs News Letter-14th Oct-12

2 Oct, 2012, 12.51AM IST, Rachita Prasad,ET Bureau

Suzlon Energy stares at $209-million default on

overseas loans; shares tank over 5%
A key executive of Suzlon said that the company was staring at a "potential default" after
bondholders refused to extend the date for repayment of foreign loans

Loss-making Suzlon Energy, which binged on overseas acquisitions with borrowed money
during the boom years of 2005-2008, is set to default on foreign loans worth more than $200
million after offshore lenders refused to give more time for repayment.
Suzlon's request to extend the date for repayment of $209 million worth of convertible bonds
by four months to February 11 was rejected by bondholders, the company said in a statement
on Thursday. The announcement sent its shares crashing by more than 5%. This would be the
biggest default by an Indian company after pharma major Wockhardt failed to pay
bondholders in 2009.
"I don't have enough resources to meet the obligation today. So, it's a potential default," a
senior company executive told ET.
The default may also have breached covenants on the company's FCCBs that mature in 2014 and
2016, and which are together worth $270 million, two people close to the development said.
Bondholders may seek early repayment on these two bonds, adding to the woes of the cashstrapped wind turbine maker that has been struggling to raise money and recover payments from
clients amid a sharp slowdown in wind energy sales.
Suzlon shares later recovered to end the day down 2% at Rs 16.20.
Suzlon is the world's fifth-largest wind turbine maker. In 2007, it purchased Germany's REpower for
around Rs 8,000 crore, in the process adding a debt of 14,000 crore. The subsequent slowdown in
wind energy sales and withdrawal of tax incentives in the budget pushed the company deeper into
the red. It has not made an annual profit in the past three years.
"The default would hurt Suzlon's creditworthiness. The company does not have further headroom to
raise loans," Ruchir Khare, analyst at Kotak Securities, said.
"It is not good news," the company executive quoted above added.
Lenders may Consider Restructuring
"But we will continue to engage with our bondholders constructively and progressively with a
solution-oriented approach," he added. In July this year, Indian lenders to Suzlon helped out when
the redemption of the first tranche of convertible bonds worth $360 million became due. But this
time they have declined requests for a similar arrangement.
But in a move that may give the company long-term succor, the lenders have agreed to consider
restructuring of Suzlon's debt to bring down its costs. "The current default of $220 million is not
much considering the company's overall debt profile. But it has other implications. We have to
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GVs News Letter-14th Oct-12

negotiate with bondholders and arrive at a settlement," said Santosh Nayak, deputy managing
director of State Bank of India said. Nayak said the asset has yet not defaulted in the bank's books
and, therefore, stands a chance to be restructured. "The company has a lot of cash flows and a
healthy order book. The company has a subsidiary called REpower that is debt free and has huge
cash balance," he added.
Suzlon executives did not comment on the restructuring, but said they did not want to get into
hypotheticals on the issue of cross defaults. "Constructive dialogue continues and we remain
optimistic of arriving at a solution that works for all stakeholders," they added.

The bondholders' rejection came as a surprise to Indian lenders and the incident has brought into
focus the tension between the two. According to one lender, most bondholders were in favour of
acceptance, except a few, including investment management firm BlackRock.
"Some big bondholders felt that the conditions were lopsided. If we gave our approval but the
secured banks did not, then there was nothing to protect our interest," an executive with an
institution holding Suzlon's bonds told ET on condition of anonymity.
Some local bankers want REpower, Suzlon's German subsidiary, to be merged with the parent so
that Suzlon can use the cash on the German firm's books. But REpower is ringfenced by German
banks and they are opposed to the merger. Nayak added that if German banks are replaced by other
banks, a new loan agreement could be incorporated allowing the merger of the two companies. A
domestic lender said the FCCB holders were confident of a bailout by local banks like it happened in
July, but the local banks held firm. "But if the company is facing problem, everyone should share a
part of haircut. And this is what we wanted to convey to the FCCB holders," he added.
"We don't comment on details of individual bond issues," an executive of BlackRock said.

GVs News Letter-14th Oct-12

About $1.3 billion of convertible bonds are likely to come up for redemption in October-December,
news agency Reuters said, citing a Kotak Securities report.
In 2009, pharma major Wockhardt had defaulted on its payments on overseas loans worth over
$300 million.

14 Oct, 2012, 06.19PM IST, PTI

Stock exchanges see cash market turnover

slide 25 per cent to Rs 34.84 lakh crore last
fiscal
14 Oct, 2012, 03.10PM IST, PTI

Investment advisers to need CIBIL credit report for

Sebi nod
NEW DELHI: Investment advisers will need to have a good credit report card and satisfactory
research capacity to get permission to provide advise to investors in stocks and other capital market
segments.
Market regulator Sebi (Securities and Exchange Board of India) recently decided to frame exclusive
regulations for Investment Advisers, after consulting other regulators like RBI, IRDA and PFRDA, as
also the comments received from the public on a concept paper disseminated for this purpose.
After deliberations over the proposed rules at the Sebi board, it was felt that the regulations need to
robust enough to safeguard the interest of investors in the capital markets, a senior official said.
Accordingly, a number of changes were suggested by the board to the draft regulations proposed by
Sebi, including the requirement of a credit report or score from CIBIL, and details of the research
facility to be submitted by the entities seeking to become investment advisers, he added.
While the draft regulations were presented before Sebi board in August, the final regulations would
be notified soon after incorporating the proposed changes.
Also, the new regulations, which make it mandatory for investment advisers to get registered with
Sebi subject to certain exceptions, would now come into force three months after their notification.
Sebi had previously proposed the regulations to become effective from the date of their notification.
Among the proposed changes, the investment advisers in their applications would be required to
submit a credit report / score from the Credit Information Bureau (India) Ltd, instead of references
from two bankers needed in the original draft regulations.
CIBIL is a national agency that collects and maintains records of an individual's payments pertaining
to loans and credit cards.
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GVs News Letter-14th Oct-12

This information is used to create Credit Information Reports (CIR) and credit scores which are
provided to lenders and other entities to help them evaluate the credit profile of the person.
Also, the draft regulations required the entities seeking to get registered as investment advisers to
submit details of their data processing capacity. Instead, they would now be required to submit
details of their in-house and other research capabilities, the official said.

14 Oct, 2012, 01.42PM IST, PTI

Total FII holding in HDFC rises to 68.72% in JulySeptember (CMP=740)

Mumbai: Shareholding of overseas institutional investors in HDFC has risen to 68.72 per cent -- the
highest level in five-and-a-half years -- despite foreign entities like Citigroup and Carlyle exiting the
housing finance major in recent months.
The cumulative holding of Foreign Institutional Investors (FIIs) in HDFC rose to 68.72 per cent in the
July-September 2012 quarter, up from 66.74 per cent at the end of previous quarter, as per stock
exchanges data.
The increase in FII holding in HDFC is among the highest for any Sensex company during the quarter
ended September 30, 2012.
Also, the current FII holding of 68.72 per cent in HDFC is the highest since five-and-a-half years ago,
when it stood at 68.85 per cent at the end of quarter ended March 31, 2007.
Experts say that impressive returns earned by some overseas investors in HDFC in the recent past
could be the main reason for other foreign entities purchasing the company's shares.
While Carlyle has exited from its about five-year old investment in HDFC (Housing Development
Finance Corporation) with nearly double the returns, Citigroup also made impressive gains on its
investment.
Carlyle had acquired over 5.2 per cent in 2007 at price of nearly 340 per share. A part of this holding
was sold in February this year for about Rs 1,400 crore at an average price of about Rs 677 per share.
The remaining 5.7 crore shares, accounting for 3.7 per cent stake, were sold earlier this month at a
price of about Rs 762 a piece -- more than double the average purchase price by Carlyle.
Citi had also sold its 9.85 stake in HDFC for about Rs 9,300 crore in February.
During the July-September 2012 quarter, HDFC shares swelled by 18 per ent, as against over seven
per cent gain in BSE's benchmark Sensex. In the same period, FIIs have invested a hefty sum of a
little over Rs 40,000 crore on the back of a slew of reforms initiated by the government.
The overall holding of institutional investors also rose to the highest level in four quarters in JulySeptember 2012 period (86.75 per cent) -- mostly because of additional purchase of shares by FIIs,
as domestic institutions have lowered their exposure considerably in the past one year.
The holding of domestic institutions stood at 18.03 per cent as on September 30, 2012, down from
29.05 per cent a year ago.
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GVs News Letter-14th Oct-12

14 Oct, 2012, 04.22PM IST,

FIIs pumped over Rs 10,000 crore in stocks in

October so far
Foreign institutional investors poured in over Rs 10,000 crore in the stock market this month so far
enthused by reforms initiatives taken by the government to boost economic growth and investor
sentiment.
During October 1-12, overseas investors were gross buyers of shares worth Rs 30,605 crore, while
they sold equities amounting to Rs 20,223 crore -- translating into net inflow of Rs 10,382 crore (USD
2 billion), as per data available with market regulator Sebi.
Foreign Institutional Investors' (FIIs) investment in the country's equity market has reached Rs
92,713 crore (USD 17.84 billion) so far this year.
Market experts believe that FIIs continued their bullish stance on the equity market on account of
recent reform initiatives taken by the government and expect the inflows to continue in the coming
months.
"The inflows into domestic equity continued on the government's reform measures and I hope it will
continue in the coming months as well," Wellindia Vice President Research Vivek Negi said.
He further said foreign investors are optimistic on India as inflation has stabilised which may prompt
the RBI to cut interest rates soon.
Apart from equities, FIIs also infused Rs 1,273 crore in the debt market so far this month.
Meanwhile, the BSE's benchmark Sensex slipped by 87 points, or 0.5 per cent, so far this month to
settle at 18,675.18 points on Friday.
As on October 12, the number of registered FIIs in the country stood at 1,752 and total number of
sub-accounts were at 6,336.

PTI Oct 11, 2012, 08.17PM IST

Unitech shares up over 17 pc ; market value rises by Rs 1,055 cr

Shares of realty firm Unitech today saored by over 17 per cent, increasing the market value
by Rs 1,055 crore, after the company said it has settled amicably all disputes with Telenor
over their telecom business Uninor and that it will exit the joint venture.
After surging over 18 per cent during the day, shares of the company finally ended at Rs 27.2,
up 17.49 per cent on the BSE.
In the process, the company's market value surged Rs 1,055 crore to Rs 7,111 crore.
On NSE, the stock surged 17.46 per cent to Rs 27.25. Meanwhile, shares of Telenor were up
0.18 per cent at 110.70 Norwegian Krone at the Oslo Stock Exchange.
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GVs News Letter-14th Oct-12

Unitech and Telenor said they have agreed to transfer the business in Uninor to a new entity
controlled by the latter.
Telenor and Unitech had been at loggerheads ever since the Supreme Court in February
cancelled Uninor's 22 telecom permits. Telenor wanted to scrap the JV and transfer the
business to a new firm and get fresh license. Both were engaged in legal battle in courts and
the Company Law Board.
With the settlement of disputes with Telenor, Unitech will focus on its core business of real
estate.
14 Oct, 2012, 06.21PM IST, PTI

Market-cap of top seven companies down Rs

39,787 crore; RIL biggest loser
The combined market valuation of top seven Sensex companies fell by Rs 39,787 crore last week,
with RIL alone taking the steepest hit of Rs 12,457 crore.
Besides RIL, TCS, ONGC, CIL, SBI, NTPC and Infosys their value dipping. On other hand, ITC, HDFC
Bank and HUL saw gains in their market capitalisation (m-cap).
The market value of RIL decreased Rs 12,457 crore to Rs 2,64,957 crore, with its share price falling
4.5 per cent during the last week.
Energy major ONGC took the second biggest hit as its m-cap slipped Rs 8,470 crore to Rs 2,37,243
crore.
Infosys, which declared its second quarter results on Friday, saw its market value plummeting Rs
7,595 crore to Rs 1,37,565 crore in the week.
The IT bellwether's counter witnessed heavy selling on Friday amid lower-than-expected quarterly
earnings and a cut in its full-year revenue guidance.
Besides, State Bank of India's value plunged by Rs 5,952 crore to Rs 1,51,025 crore, while Coal India
lost Rs 2,526 crore to finish the week with a m-cap of Rs 2,27,010 crore.
NTPC shed Rs 1,691 crore to Rs 1,39,100 crore and TCS's m-cap dipped by Rs 1,096 crore to close at
Rs 2,54,076 crore.
On the other hand, FMCG major ITC added Rs 5,735 crore to Rs 2,22,333 crore in m-cap, while HDFC
Bank's value moved up by Rs 1,995 crore to Rs 1,48,784 crore.
Another FMCG firm HUL's m-cap climbed by Rs 1,963 crore to Rs 1,24,003 crore.
In the list of top-10 companies in terms of m-cap, RIL was at top place, followed by TCS, ONGC, CIL,
ITC, SBI, HDFC Bank, NTPC, Infosys and HUL.

GVs News Letter-14th Oct-12

I really pity on State bank of Inda, It involved around Rs:4,000 Crs in
KFA (King Fisher Airlines) Account, now another Rs:3,500 crors in
Suzlon, what about other NPAs. Canarabank Inolved in DECCAN
CHRONICLE HOLDINGS, PNB involved in KFA. Just these 3 issues I
remember , if we go in deep research on Banks NPAs & other SPV
financing our Computers can not calculate the NPAs.
The Great Threat to indian companies is FCCB issue. Many more
companies on derailing on FCCB track. Investors are advised to wait
& watch.
October 13 2012

Record High Debt and Record Low Rates

- By Asad Dossani,

Imagine you are a lender. You are evaluating the creditworthiness of two potential
borrowers. The first borrower has very high debt levels that exceed his annual income, and
needs to borrow just to stay afloat. The second borrower hardly has any debt at all.
Naturally, the first borrower is a higher risk than the second one. So it would make sense as
a lender to charge the first borrower a higher interest rate as compared with the second
borrower, in order to compensate for the increased risk.
Now let's translate this example into the global debt crisis. Countries with high debt levels
should see rising borrowing costs, to compensate for the fact that they have a greater risk of
default. And this is the case for the European countries going through debt crisis. Greece,
Spain, Ireland, etc. have all seen their borrowing costs rise, as evidenced by the rising
government bond yields.
But somehow this logic fails when we apply it to certain countries. The US has a debt to
GDP ratio in excess of 100%, yet its 10-year bond yield is less than 2%. Japan has a debt to
GDP ratio over 200%, yet its bond yield is less than 1%. The UK has a bond yield less than
2% despite a debt to GDP ratio near 90%.
This is a case of record high debt levels and record low interest rates. Something funny is
going one here. Why is it that these countries have debt levels that are at similar levels as
compared with European countries going through problems, yet they can borrow so much
cheaper?
The main difference between these two groups of countries is the currency of their debt. The
US, Japan, and the UK all have their debt denominated in their own currency, for which they
can adjust interest rates and increase money supply. The peripheral Eurozone countries
have debt denominated in the euro, for which they have no direct control over the interest
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GVs News Letter-14th Oct-12

rate or money supply.
Thus, what matters is the currency of the debt. Going back to the example in the beginning,
if the high debt borrower also has the ability to reduce the value of his debt, he is no longer
as risky as before. In the Indian case, our debt to GDP ratio is near 70%. Our government
bond yield is 8%, which in real terms is around 1% (i.e. inflation at 7%). Again, debt in a
currency we can control is not perceived as risky.
October 13 2012

Beware of this key factor while investing in stocks

There have been instances in the past when many company managements have been lured
by the prospect of 'attractive' businesses. In quite a few of these cases, the diversification
had no relation whatsoever to the core operations. Further, there was no evidence that the
management had any experience running such a business. But because it was successful in
running its main business, it was under the illusion that it should have no problems running
other kinds of businesses as well. And that many a time has led to its undoing.
One such company to earn this dubious distinction is none other than Deccan Chronicle.
After boasting that it is the top team in the Indian Premier League (IPL) a few years back, it
now faces the prospect of the termination of its team Deccan Chargers. This is after the
company failed to provide a bank guarantee as stated by the High Court. The case of
Deccan Chargers is a reminder of what investors need to be careful about while investing in
such stocks. Indeed, the company management made injudicious investments in unrelated
busi nesses where it hardly had much of an experience. And all was good until the core
business kept supporting the cash needs of its loss making subsidiaries. But once the core
business also started faltering a bit due to adverse economic environment, it started relying
on short term debt to fund its long gestation subsidiaries. Ultimately, the company ran into
serious cash flow problems as debt rollover became difficult and it all culminated into lenders
coming knocking at the company's doors. Needless to say, the stock price took a heavy
pounding.
We at Equitymaster were also wrong in realizing the shenanigans of the company rather
late. That its investment in the long gestation cricketing venture will take the company debt
to equity from 0.3 times in FY11 to an estimated 3.5 times currently was beyond our guess.
And while we did advise investors to sell their holdings in the stock in early 2012, we admit
that we should have done it much earlier.
So the important learning is not just pay attention to annual report details. But also pay very
close attention to the business that the company is getting into or plans to invest in. Those
diversifying into non-core businesses that too with the help of external funds should
certainly be shied away from. Stressing on core competence and diligence is the only way
to reducing the occurrence of bad eggs in one's portfolio.

GVs News Letter-14th Oct-12

The Economist pointed out that in the second quarter of 2012, the global economy grew at
its slowest rate since the end of 2009. If one charts this trend over the past 10 years,
China's contribution to the growth in world GDP has been steadily rising. This is hardly
surprising given the stupendous growth that the dragon nation has witnessed over the years.
In India's case the results have been mixed. Before the start of the financial crisis, its
contribution to growth also inched upwards. Three consecutive years of 9% plus GDP
growth certainly helped. But the growth path has gone a bit awry post that. Although the
Indian economy came back strongly in FY10, the past several quarters has seen growth
slow down on account of high inflation, fuel prices, interest rates and fiscal deficit.

All this News Collected & Compiled & Brought to you by:

G.VENKAT RAO (GV)

RAJAHMUNDRY-533103
ANDHRAPRADESH
INDIA

CELL: 9700556669
E-mail: venkatrao_gv@yahoo.co.in
Web: www.moneymatters.co.nr

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