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Fed Rate Hike, Pinterest Dressing Up for IPO, Swiggy raises $1bn, Govt May Inject INR2,300cr into Air India et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Dec 20, 2018 3:00 PM 5 min read
Editorial

Markets overall choppy on back of an expected Fed rate hike. Aviation sector woes hit back on Air India and Jet Airways, while the government enhances its dependency on PSUs to plug the fiscal deficit gap. Indian startup ecosystem hit by the paradox of record funding and a predatory taxman.

 

Now to today’s Top 6 Business Stories:

 

Fed Rate Hike, Pinterest Dressing Up for IPO, Swiggy raises $1bn, Govt May Inject INR2,300cr into Air India et al.

 

MACRO

Largely in-line with expectations, Fed raised short-term interest rates by 25bps; Indian markets somewhat muted - also awaiting Parliamentary approval wrt PSB bail-out. 

The What?: As expected, the Fed ticked up short-term interest rates by 25bps with the benchmark federal-funds rate now ranging between 2.25% to 2.50%. As such, this is the fourth such rate hike in the calendar year and perhaps the one most closely watched in light of recent choppiness in the markets as we highlighted yesterday

However, there was an equally heightened focus on commentary and "guidance'" alongside the rate hike. Fed Chairman Jerome Powell took somewhat of a dovish tone in his "We have seen developments that may signal some softening, relative to what we were expecting a few months ago" hinting towards perhaps fewer rate hikes in 2019, which should bode well for the markets, at least in the near term.   

What Else?: Indian markets react negatively due to reinforcement of "Flight to Quality" narrative in light of the Fed hike. Both Sensex and Nifty 50 down -0.14% by end of day. Another show-stopper is a potential Parliamentary approval to increase PSB bail-out by INR41,000cr via recapitalization bonds. These funds would be in lieu of the amount the PSBs were supposed to raise directly from the markets but were unable to do the same, as per ICRA.

 

BUSINESS

ONGC approves a lofty INR4,022cr share buy-back, broadly in-line with the mandate laid out by Department of Investment and Public Asset Management.  

 

What: ONGC Board approved a fairly meaningful INR4,022cr share buy-back at INR159 per share (share price was INR148.45 at market close).  This buy-back entails 1.97% of outstanding equity and represents a sizable contribution to government coffers, while strengthening its balance sheet and in turn meeting its 3.3% fiscal deficit target for the current fiscal year.   

 

Zoom out: The ONGC transaction follows a series of PSU buy-backs that have been announced in recent times, largely under government coercion. Indian Oil Corp, NHPC, BHEL, NALCO, NLC, Cochin Shipyard, KIOCL are a few PSUs that have already announced meaningful buy-back programmes. Recall that the Department of Investment and Public Asset Management had mandated PSUs with net worth of at least INR2,000cr and cash balance of at least INR1,000cr to engage in share buybacks. This is part of government's broader revenue target of INR80,000cr via PSU disinvestments and buy-backs for the current fiscal year.

 

AVIATION

Govt may inject INR2,300cr into Air India following a failed sale bid. Jet Airways to return eight Boeing 737 aircraft as it faces severe cash crunch.


Zoom Out: Air India has over $8bn in debt having made no profit in more than a decade. In a bid to revive the national carrier, the government has conceived a four-part strategy - a financial package, a branding refresh, organisational and governance reforms, and a plan to motivate staff. The move will rule out the immediate plan to sell the debt-ridden carrier.

 

Jet lags: Jet Airways returns eight Boeing 737 aircraft to its lessors, also delays induction of new planes on back of cash crunch.

 

What’s the plan?: The development comes as Jet seeks to raise fresh capital. The debt-ridden domestic airline is in talks with Abu Dhabi’s Etihad to get the latter to raise its stake in the airline from 24% to up to 49% and with State Bank of India, for conversion of debt to equity.

 

TECH

Pinterest dressing up for a $12bn+ IPO in 2019 as per market grapevine. 

 

'Pinterest'ing IPO in the offing: As per a WSJ report, Pinterest Inc. is actively preparing for an IPO in the first half of 2019. The ad-supported platform boasts of MAUs north of 250mn and is expected to generate revenues of $700mn+ implying a sharp 50% YoY growth. IPO valuations can often show perplexing ranges, driven by some clever financial engineering. Consequently, one can often see fairly steep valuation swings as early as day one of trading. However, it is fair to assume that Pinterest could be valued in excess of $12bn - a theoretical floor perhaps, given its last raise valued it at that. 

 

IPO mode on: With Uber and Lyft IPOs also looming large in 2019, Pinterest might be yet another meaningful addition to the list with other tech names such as Rackspace, Palantir, Robinhood, Slack also appearing to be bitten by the IPO bug.

Fed Rate Hike, Pinterest Dressing Up for IPO, Swiggy raises $1bn, Govt May Inject INR2,300cr into Air India et al.

 

STARTUP

Swiggy raises $1bn led by existing investor, Naspers. Govt ensures that there will be no harassment of angel investors and startups.

 

Swiggy swells: The round which increased Swiggy's value to $3.3bn was led by existing investor South African media giant Naspers, besides entry of new investors such as Tencent and hedge funds Hillhouse Capital and Wellington Management. DST Global, Meituan Dianping and Coatue also participated in the fund raising.

 

Up Close: The latest funding round will give the food delivery platform a significant capital advantage over rival Zomato. As per an ET Tech report, while Swiggy has raised a total of $1.31bn across three funding rounds in 2018, Zomato has raise around $410m in two rounds.

 

Zoom Out: Swiggy is to use the funds to bring more quality food brands closer to consumers and address gaps in supply through delivery-only kitchens under the ‘Access’ initiative for restaurant partners. Besides further pushing into the food delivery business, it will also use the proceeds to expand into new businesses such as grocery and online pharma delivery.

 

The threat of angel tax looms large: Several early-stage startups have received notices to clear taxes on angel funding raised by them. In certain cases, the taxes-cum-penalty on unpaid tax amount to c. 50% of the funds raised. As per a ET Tech report, CBDT is examining the issue and could issue a clarification regarding the same. 

 

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