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Govt Proposes Subsidies for Hybrid Cars, GM Cuts Jobs to Trim Costs et al

Professor of Financial Economics and Part-time Value Investor, Transfin.
Nov 27, 2018 1:19 PM 3 min read
Editorial

Good evening reader,

 

Confession: We're big fans of the Insolvency and Bankruptcy Code (IBC), with all its flaws.

 

We get it. It's a work in progress, full of jurisdictional confusion and double standards, with differential treatment for some defaulters vs. the others.

 

But for the first time in corporate India, the IBC is ensuring that power dynamics get re-aligned courtesy a structured time-bound (albeit not perfect) process for resolution.

 

Hence when we heard of "pre-packaged bankruptcy" schemes being considered to be included in the IBC, we were practically giddy.

 

Ok, enough with the excitement. What is being "pre-packaged" here?: Well, a pre-pack is a concept borrowed from Chapter 11 rules in the US, where creditors and shareholders can approach a bankruptcy court (the NCLT in the Indian context) with a pre-negotiated corporate reorganization plan.

 

Pre-packs save the courts valuable time, reduces cost of resolution, but are more difficult to enforce in case someone backs out. They work well in developed economies where contract enforcement works well.

 

However in India, ranked 163 in enforcing contracts (as per our beloved Ease of Doing Business Rankings), a lot more would be needed to ensure they become a viable option.

 

Moving on to today’s Top 6 Business Stories through our End of Day Wrap Up:

 

INDIA

 

Government proposes subsidies for hybrid cars.

 

As per a report by Livemint, Ministry of Heavy Industries and Public Enterprises has proposed a subsidy to promote hybrid cars.

 

What You Need To Know: The government had initially denied subsidies for these vehicles, instead emphasizing incentives to manufacture lithium-ion batteries. Toyota retracted its hybrid cars from the Indian market after they had been placed in the highest slab of GST.

 

RBI inspecting Yes Bank’s loan exposure to NBFCs.

 

In a report by Livemint, a RBI supervision team is examining Yes Bank’s loan exposure since the date of sanction of loans to IL&FS, DHFL, Indiabulls Group etc. against the backdrop of the IL&FS implosion.

 

The Big Picture: This inspection comes as a follow up to a letter written by the RBI to Yes Bank seeking documents related to its exposure to NBFCs. Shares of the bank dipped c. 2%.

 

Telcos to pay INR24,500cr to Government as spectrum fee in 2019.

 

Perspective: Telecom companies would have to pay INR 24,500cr to the government as deferred payment for previously won spectrum . This payment will be a boost to the Centre’s budget but will hurt telcos as they would be required to pay interest.

 

Up Close: Of the total, Vodafone-Idea has to pay almost half the sum, amounting to INR12,200cr. The firm is already facing huge debt and interest burden. The firm's share dropped c. 3%.

 

Fall in Crude Oil prices power Indian stock markets high.

 

Nifty 50 has climbed 6% in the last 30 days, making Indian equities as emerging market front-runners on back of declining Crude Oil prices. Shares of Bharat Petroleum and Hindustan Petroleum surged 19% and 9% respectively, due to cheaper oil and higher demand.

 

US/INTERNATIONAL

 

General Motors to cut over 14,000 jobs in US to trim costs.

 

General Motors (GM) announced that it would be laying off over 14,000 employees from five factories in US and Canada in a bid to cut costs to adjust to its poor sales.

 

Up Close: President Trump expressed his disappointment and urged GM to stop manufacturing cars in China to replace the factory that is ending production in Ohio.

 

Zooming Out: This move will allow the company to save $4.5bn by the end of 2020. However, it would have a major impact on employment in states of Michigan, Ohio and Canada.

 

United Technologies to break into three companies, to focus on aerospace.

 

US-based United Technologies Corporation (UTC) has planned a three-way split. The company will be spun off independently as:

  • United Technologies, which includes the newly-acquired Rockwell Collins Inc. retaining its aerospace business
  • Otis Elevator Company
  • Carrier Corporation

 

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