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IL&FS in Deeper Waters, Ola Continues International Expansion et al

Professor of Financial Economics and Part-time Value Investor, Transfin.
Sep 18, 2018 1:43 PM 3 min read
Editorial

Good evening readers, 

 

Share price of Bank of Baroda is down 17.04%, Vijaya Bank is down 7.26%, and Dena Bank is up 19.81%. Their announced merger yesterday to create India's third largest bank, followed by today's market afterthought clearly suggest the winner and the losers from this deal. It is the irony of capitalism that the winner i.e. Dena Bank was the bad apple in the lot, with 11% NPAs and the thinnest capital buffer at 8.15% T1. 

 

A merger is supposed to work if A + B is greater than A and B arithmetically added together - the something extra to come through "synergies", either driven by additional revenues or reduced cost. Revenue synergies is the fuzzier bit and usually a difficult sell. It is supposed to come from things like additional distribution and market reach (such as bank branches in parts of the country where you're not present). Cost synergies, being more tangible, are a euphemism for cost cuts to reduce overlapping manpower or infrastructure. Where this particular 'amalgamation' is headed, without data on price or structure is difficult to assess. In all honesty, we don't even think it's a consideration here.

 

Banking woes are in general followed by regulatory over-reach resulting in only bigger "too big to fail" banks. Look at the largest institutions before a banking crisis, and the largest ones after. They are usually the same names, only bigger. This is just a repeat of history.  

 

On that note, presenting today's Top 6 Business stories through our End Of Day Wrap Up

 

INDIA

 

IL&FS asks Govt for support in the looming financial crisis. ICRA and Care Ratings downgrade its several debt instruments to ‘D’.

IL&FS has approached the Ministry of Finance to prevent a looming default crisis, after LIC and other major stakeholders rejected a INR3,000cr loan facility. According to reports, Ministry of Finance has an adverse view of this proposal by IL&FS. To worsen the situation, ICRA and Care Ratings have also downgraded several debt instruments to the lowest rating of ‘D’ indicating imminent default, on back of liquidity concerns. 

 

Ola set to launch in New Zealand after UK and Australia.

The Bengaluru-based ride hailing company is set to start operations in three major cities of New Zealand after serving over 125 million users in the UK and Australia, thereby increasing competition with its international counterpart, Uber. Ola, operated by ANI Technologies Pvt. Ltd. is said to have invited private vehicle owners to register, with an opening offer of 9% commission.

 

After Essar Steel, ArcelorMittal expresses interest in Engineering Procurement Construction business.

ArcelorMittal looks to expand on its acquisition across the Essar group. After placing a bid for debt-laden Essar Steel last week, it has stated interest in the group’s EPC business that has built all the steelworks, refineries and ports for the Group. ArcelorMittal is aiming to expand Essar Steel’s capacity to 20 tonnes.

 

Reliance Communications to monetize its telecom and global undersea cable business; to focus on realty.

In an effort to reduce its existing INR46,000cr in debt and subsequently increase focus on realty, Reliance Communication is expected to sell its telecom assets. This follows RCom's recent deal with Reliance Jio and Brookfield. According to Chairman, Anil Ambani, the Group is also set to monetize its undersea cable business.

 

US/INTERNATIONAL

 

US excludes Apple smart watches and its other gadgets from new China tariffs.

Apple watch and Airpods are among the various gadgets that have been excluded by the US administration from the $200 billion tariffs on Chinese goods. President Trump warned China of a ‘phase three’ of the tariffs on $267 billion additional imports, if retaliatory measures are pursued. Apple shares fell 0.7% after the announcement.

 

Google partners with major automakers to launch Android into the auto industry.

Google has entered into talks with Renault, Nissan and Mitsubishi to power media display in their of new vehicles. This new system is expected to be unveiled in 2021, allowing easier access to Google Maps, app store and the voice-activated assistant, since customers are predisposed to a lot of Google apps as opposed to the ones developed by the car companies themselves.

 

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