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Govt to Save the Sinking Ship, Global Economy Becoming Less Bright et al.

Professor of Financial Economics and Part-time Value Investor, Transfin.
Oct 2, 2018 1:06 PM 3 min read
Editorial

Good evening reader, 

 

The government as expected has directly intervened in IL&FS, dismissing its previous board to bring a 6-member New Board comprising 1 bank CEO, 1 former regulator, and 4 former bureaucrats (not a very fresh approach we dare say, especially for a quasi PSU!). Nevertheless, their hands will be full with IL&FS's future path looking more and more prioritized to recover debt obligations rather than long term survival. 

 

IL&FS's ability to move Indian markets, both equity and debt, has been evident in the last few days, where its story has increasingly brought more and more uncertainty among investors and Indian financial stocks in general, be it banks or NBFCs. Read yesterday's LongShorts to understand more on this linkage. 

 

Such deep entrenchment means that IL&FS deserves to fail, but should not. 

 

Their survival plan aside some long term lessons need to be learned. To rethink how infrastructure, typically driven by long-dated assets, should be financed. Innovations such as covered bonds, project finance via specialist Wholesale Banks can be considered. Read an interesting piece by one of our valued contributors on this subject. 

 

A major upgrade around corporate governance and accountability would be welcome! Not merely a witch-hunt through SFIO and other investigating agencies. But things which are rather curative. Think we're too well-rested to be cynical today :) 

 

Presenting Today's Top 6 Business Stories through our End Of Day Wrap Up:

 

INDIA

 

Govt's 6 member board takes control of IL&FS. On agenda incl. appointment of new CEO & CFO, immediate liquidity support, and restructuring. SFIO starts investigation. 

Government's 6 member board, comprising Uday Kotak (MD & CEO, Kotak Mahindra Bank), GN Bajpai (Former Chairman SEBI & LIC), GC Chaturvedi (Non-executive Chairman, ICICI Bank, Former IAS), Vineet Nayyar (Executive Vice-chairman, Tech Mahindra, Former IAS), Malini Shankar (DG, Shipping, IAS), Nand Kishore (Former Deputy CAG, Indian Audit and Accounts Service), takes control of IL&FS. On agenda is appointment of new CEO & CFO, government liquidity support, build-up of restructuring plan, asset sale planning & execution etc. Serious Fraud Investigation Office starts probe into "financial irregularities" and failure of senior executives and board members for not raising red flags on an upcoming liquidity crunch. Look-out notice on for four former Directors, including former Chairman Ravi Parthasarathy. 

 

Aadhaar-issuing authority gives telecom companies 15 days to propose a plan to delink user Aadhaar numbers.

Driven by Supreme Court's recent verdict, the Unique Identification Authority of India (UIDAI) gives major telecom companies 15 days to propose a plan to stop using the 12 digit Aadhaar number for authentication. Immediate follow-up of subscriber requests for delinking Aadhaar from mobile numbers also reinforced. 

 

GST collections below target of INR100,000cr for fifth consecutive month, but rises m-o-m.

GST collections for September at INR94,400cr, below the targeted INR100,000cr but up 0.5% vs INR94,000cr in August. Y-o-y figures have gone up by 2.5%. Upcoming festive season may bring outperformance.

 

SBI, ICICI Bank, PNB, HDFC increase MCLR and retail prime lending rate by 5-10bps.

Rate increase ahead of RBI's bi-monthly Monetary Policy Announcement. MCLR used as benchmark lending rate used by banks and retail prime lending refers to benchmark rate used by NBFCs. 

 

US / INTERNATIONAL

 

IMF Director Christine Lagarde raises concerns around Global Economy.


Says International Growth may be flattening and that IMF's official economic forecasts, to released next week, have “become less bright” and that factors identified as merely risks earlier in the year have begun to materialize. IMF economists estimate emerging markets could face up to $100 billion in portfolio outflows. 

 

Pfizer's Ian Read plans to step aside as CEO after 8 years.

Alberta Bourla to become new CEO of one of the world’s biggest drugmakers. Mr. Read to serve as Executive Chairman indefinitely. New CEO to confront patent loss of pain drug Lyrica by end of this year, which generated $3.5bn sales in US last year. Company said to have 15 products in late stages of development.

 

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