Jet Airways seeks Aviation Min nod to buy 6 Kingfisher slots

 B L : PTI ;MUMBAI, MAR 3:2013

  

With the government withdrawing Kingfisher Airlines’ international flying rights and domestic slots, the Jet Airways has approached the Aviation Ministry to acquire six of the vacant slots, according to sources.

“We have applied to the government to acquire six slots from Mumbai. Of these, we are looking at four domestic and two international routes,” Jet Airways sources said.

Out of the six slots from Mumbai, Jet has sought three morning slots and remaining three evening ones, they said adding, “The destinations are being worked out.”

Last week, the government had withdrawn all domestic and international flying slots of Kingfisher Airlines, which remains grounded since October 1 last, with immediate effect and decided to allot them to other domestic airlines.

The Vijay Mallya-promoted carrier’s flying licence also expired last December, which though can be revived.

Besides operating on domestic routes, Kingfisher also used to operate to Britain (seven flights a week), the UAE (21 flights per week), Thailand (21 weekly flights), Nepal (seven), Bangladesh (14 a week), Sri Lanka (35 per week), Hong Kong (14 a week) and Singapore (7 a week).

The withdrawal of these slots has made available approximately 25,000 seats per week for other carriers to these eight countries.

Interestingly, the Naresh-Goyal promoted Jet Airways is seeking these slots after selling its all three slots at the premier London’s Heathrow airport to the Abu Dhabi-based Etihad for $70 million last week, in a move that may bring its ongoing discussions with the Gulf carrier for stake sale closer to fruition.

Indian banks’ troubles not over yet, says S&P

live Mint :Joel Rebello  |  Dinesh Unnikrishnan   Feb 26 2013. 12 29 AM IST

Rating firm sees the benefits of the govt’s reform initiatives flowing into the banking sector with a lag

 A continuing slowdown in Asia’s third largest economy and sluggish fiscal reforms are likely to increase the “troubles” of India’s banking system in the next one year and any improvement in the situation is likely only in the year to 31 March 2015, rating agency Standard and Poor’s (S&P) said on Monday.

S&P expects total non-performing assets (NPAs) of Indian banks to increase to 4.4% of loans by March 2014 from an estimated 3.9% in March 2013.

The performance of the Indian economy and, hence, the corporate sector is, however, likely to start improving in the second half of fiscal 2014, the rating company said in its banking outlook report.

S&P expects India’s gross domestic product (GDP) growth to improve from a decade low of 5.5% in fiscal 2013 to 6.4% in 2013-14 and further to 7.2% in fiscal 2015.

“Revival in private consumption, improvement in agriculture output assuming a normal monsoon, pre-election welfare spending, low interest rates and mild recovery in exports will be the main reasons for the economic recovery,” said Geeta Chugh, director and analytical manager, financial institutions ratings, emerging Asia, S&P.

India is likely to vote for a new Parliament in May 2014 and the government is likely to raise welfare spending to woo voters.

The rating firm said it assumes the Indian government will be able to carry forward its recent reform initiatives, which could improve operating conditions for the corporate sector. The benefits of these measures could also flow into the banking sector with a lag, S&P said in the report.

“Things are changing in the last six months and the early signs are positive for the corporate sector. For example, if the cabinet committee on investment is implemented in the right spirit, it will address the bottlenecks in the power sector and issues linked to land acquisition. But it is at least six months away from now,” said Mehul Sukkawala, director, corporate and government ratings, south Asia, S&P.

S&P has a negative outlook on all Indian banks reflecting its rating on the sovereign. In April, S&P changed India’s outlook to negative from stable, citing deteriorating fiscal conditions. At “BBB-”, India has the lowest investment grade among its emerging market counterparts—Brazil, Russia and China.

The S&P analysts declined to share any insights on India’s sovereign outlook.

S. Ranganathan, head of research at LKP Securities Ltd, said India’s annual budget to be presented by finance minister P. Chidambaram later this week will be crucial in assessing how soon the country will return to the high-growth path. “The government will have to rein in the fiscal deficit to 4.8% of GDP next year. For banks, the problems are well known as credit growth has slackened to 8% in the first nine months of this fiscal from more than 12% last year. Going forward, it is possible that the NPA situation will worsen and profitability impacted as banks increase provisions in line with Reserve Bank norms,” Ranganathan said.

S&P expects return on assets of banks to improve to an average of 1% in 2014-15 from 0.9% currently. It will remain at 0.9% average in the fiscal ending 31 March 2014.

However, the rating agency did not give an estimate for NPAs in March 2015.

“A lot will depend on how the corporate sector performs. The improvement will only be gradual, and policy will play a big role in sectors like power, roads, metals and mining,” Chugh said.

The Reserve Bank of India released guidelines for new bank licences on Friday, but S&P said it is unlikely that the new players will pose problems to the incumbents any time soon.

“Entry of new banks will be a protracted affair and will not impact the sector in the next few years,” Chugh said.

Lawyers to boycott court proceedings In Tamilnadu And Pondicherry on 4th March 2013

The Hindu :SALEM, March 2, 2013

Demanding that India should strongly support the U.S.-backed resolution against Sri Lanka in the UNHRC in Geneva and President Mahinda Rajapaksa be tried for war crimes, over 60,000 lawyers from all the 250 bar associations in Tamil Nadu and Pondicherry would boycott proceedings on March 4, P. Paramasivam, Chairman, Federation of Bar Associations of Tamil Nadu and Pondicherry said here on Friday.

Addressing presspersons, Mr. Paramasivam said that over one lakh Tamil people, including women, children were brutally killed by the Lankan government during the end of 2009 war.

Mr. Paramasivam wanted a voting to be carried out for establishing a separate Tamil Eelam so that the rights of Tamil people were protected.

Non-performing assets in Indian banks

B S :KP Shashidharan:11 Feb 2013

RBI has been insisting on banks to utilise various measures on recovery of bad loans and strengthen due diligence

The global rating agency, Moody’s, in its latest report of 2013, has downgraded Indian banking system’s rating outlook from ‘stable’ to ‘negative’.

 The Reserve Bank of India (RBI) has also observed in its second quarter review of monetary policy 2012-13 that the Non Performing Assets (NPA) and restructured loans of banks have been increasing significantly and a major reason for deterioration in the asset quality of banks is the lack of effective timely information exchange among banks on credit, derivatives and un-hedged foreign currency exposures.

As per the available statistics, NPAs for all banks rose to 3.6 per cent in September 2012 and are expected to reach 4% by March 2013 and 4.4 per cent by the March 2014.

In the first two quarters of the current fiscal 2012-13, the banks referred a record number of 74 CDR cases; total debt requiring restructuring increased to Rs 40,000 crore. Latest quarterly results of banks show that NPAs of at least in 35 banks rose from the last fiscal 2011-12 by 28 per cent reaching over Rs 32,000 crore in the first half of current financial year, amounting bad loans to Rs 1.47 lakh crore as on September 30, 2012.

NPAs in SBI have grown 24 per cent marking over Rs 49,000 crore in 2012-13, constituting one third of gross NPAs of all listed banks put together. SBI’s gross NPA as percentage of total advances has risen to 5.15% from 4.4 per cent. 

As per the latest data available with CDR cell, 466 cases involving debt of Rs 2.46 lakh crore have been referred to it since its inception. High interest costs, along with overall sluggishness in the domestic and global economies are reported to be the reasons for the companies to meet their debt obligations.

In order to reflect true financial health of the banks in their financial reports, RBI had issued a master circular in June 2008 detailing prudential norms on NPA, asset classification, income recognition and provisioning. An asset becomes non-performing when it ceases to generate income for the bank.

 Keeping in line with the international best practices, NPA has been defined from March 31, 2004 as credit in respect of which interest and/or installment of principal has remained ‘overdue’ for more than 90 days. Identification of NPA should be done on an ongoing basis and doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the amount would have been classified as NPA.

RBI norms stipulate that where there is threat of loss or the recoverability of the advances is in doubt, the asset should be treated as NPA. Banks are prohibited to book income on accrual basis in respect of any security where the interest/principal is in arrears for more than 90 days.

Consequent to changes made in asset classification norms in 2005, banks are permitted to phase the consequent additional provisioning over a five-year period from March 2005 with a minimum of 10% of the required provision in each of the first two years and the balance in equal installments over the subsequent three years.

In conformity with prudential norms, provisions should be made on NPAs on the basis of classification of assets into prescribed categories, standard assets, sub-standard assets, doubtful assets and loss assets.

 Based on the period for which the advance has remained in ‘doubtful category’, the provisioning percentage has been prescribed. Banks are required to make provisions for NPA as at the end of each calendar quarter.

 The income expenditure account for the respective quarters, profit & loss account and balance sheet for the year end should reflect the requisite provisioning made for NPAs.

RBI has been insisting on banks to utilise various measures put in place by it and the government for recovery of bad loans and strengthen the due diligence, credit appraisal and post-sanction loan monitoring systems to reduce NPAs.

The central bank has advised all banks to put in place an effective mechanism for information sharing by December 2012 and instructed that fresh sanction of loans should be done only after obtaining requisite information from January 2013.

The role of the statutory auditors of the banks cannot be under estimated in identifying NPAs and ensuring adequate provisioning as per the prudential norms.

As banks are allowed to choose its auditors from the empanelled audit firms, the regulatory body of audit firms, the Institute of Chartered Accountants of India has expressed its concern about possible conflict of interest and dilution of independence of auditors, which is of course a sad refection of the professionalism of auditors.

The change in the policy of choosing auditors by public sector banks from the empanelled list of audit firms, deviating from the erstwhile practice of appointing bank auditors by a committee consisting of members of the banking division of the Ministry of Finance, RBI and CAG is intended for ensuring level playing field among all Indian banks in respect of appointment of the auditors.

In the present scenario, it has become all the more important for RBI’s mandatory inspection to act as an effective deterrent for banks not to resort to non-adherence to applicable prudential norms and less provisioning for NPAs.

Reader’s Digest Files Bankruptcy to Cut $465 Mln Debt

A copy of Reader's Digest magazine is displayed on a rack at a grocery store in San Anselmo,
 California on Aug.17, 2009. Photographer: Justin Sullivan/Getty Images

Bloomberg :23 Feb 2013

RDA Holding Co., publisher of the 91-year-old Reader’s Digest magazine, filed for bankruptcy to cut $465 million in debt and focus on North American operations as consumers shift from print to electronic media.

The company is the latest in a line of iconic businesses to have recently sought court protection from creditors, after Hostess Brands Inc., maker of Twinkies and Wonder Bread, and Eastman Kodak Co., inventor of Kodachrome and the Instamatic camera.

The company listed assets and debt of more than $1 billion each in Chapter 11 documents filed yesterday in U.S. Bankruptcy Court in White Plains, New York. Under a restructuring agreement supported by Wells Fargo & Co., $465 million of remaining senior notes will all convert to equity. The company expects to have about $100 million in debt when it exits Chapter 11, about an 80 percent reduction.Reader’s Digest, founded by DeWitt and Lila Wallace, went public in 1990. An investor group led by private-equity firm Ripplewood Holdings LLC bought it in 2007 for $1.6 billion and the assumption of about $800 million in debt. The company also filed for bankruptcy in August 2009, citing a drop in advertising spending and the debt load incurred in its acquisition.

Unsecured Creditors

Among the company’s largest unsecured creditors listed in court papers were Luxor Capital Group of New York, listed as administrative agent for a $10 million loan, and the U.S. Federal Trade Commission, with an $8 million claim.

“We have had an ongoing process to simplify and rationalize our international business by licensing our local markets to third parties, to other publishers, to other investors and that has been a big part of our effort to streamline the company and bring in proceeds to bring down debt,” Robert Guth, Reader’s Digest’s chief executive officer, said yesterday in an interview.

The company’s flagship print magazine is read by more than 25 million people, according to itswebsite. The company publishes 75 magazines globally including 49 editions of Reader’s Digest, Taste of Home, the Family Handyman and Birds & Blooms. Reader’s Digest “sold more digital editions in December than we did newsstand editions,” Guth said.

Meredith Sale

The company had some success in the sale of Allrecipes.com “but frankly haven’t had enough success on that front,” Guth said. Last year Reader’s Digest sold Allrecipes and Every Day with Rachel Ray to Meredith Corp. for $175 million.

“The key message here is that we have a lot of confidence in the future of the business based upon the success of the ongoing operational transformation, but we haven’t had as much success with the balance sheet side of it and we need this process to help accelerate that,” Guth said.

“The much more modest debt level puts us in a position to continue to really execute these plans and push these brands forward well into the future, so it’s a very good new lease on life,” he said.

The company said it reached a pre-petition accord with its secured lender and more than 70 percent of its secured note holders. The bankruptcy was filed to implement the pre-arranged restructuring.

“The Chapter 11 process, which will facilitate a significant debt reduction, will enable us to continue to redefine our business by focusing our resources on our strong North American publishing brands, which have shown a new vitality as a result of our transformation efforts, particularly in the digital arena,” Guth said in a company statement.

Hostess

Hostess, previously known as Interstate Bakeries Corp., left an earlier bankruptcy in 2009 under the control of Ripplewood and lenders. The company, based in Irving, Texas, entered bankruptcy again in January 2012 after changes in American diets curbed sales as ingredient costs and labor expenses climbed.

Kodak, based in Rochester, New York, filed for bankruptcy in January 2012, and CEO Antonio Perez has been selling businesses to shrink the company and fund its shift into commercial printing and packaging.

RDA’s international operations, including Canada, are not part of the filing.

The case is In RDA Holding Co. Inc., 13-22233, U.S. Bankruptcy Court, Southern District of New York (White Plains). The previous bankruptcy case is In Re Reader’s Digest Association Inc., 09-23529, U.S. Bankruptcy Court, Southern District of New York (White Plains).     

Treatment of share application money-

BL : 23 FEb 2013

Share application money cannot be regarded as an investment.

The Mumbai Income Tax Appellate Tribunal ruled that ‘share application money’ represented the application amount for allotment of shares and cannot be regarded as an investment/ asset yielding tax-free income.

 Therefore, such money should be excluded while computing disallowance under section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.

AP High Court breather for Sanofi

The Andhra Pradesh High Court has turned down the ruling of the Authority for Advance Rulings (AAR) in favour of Sanofi Pasteur Holding SA. The matter involved taxability in India of the sale of shares of a French company by one non-resident to another. The French company held about 80 per cent shares in an Indian biotech company.

The Court ruled that as tax on capital gain on the transaction was exclusively allocated to France, and not India, under provisions of the Act read with tax treaty, the appellant was under no obligation to deduct tax on the amount paid for the French company’s shares and, hence, cannot be treated as an assessed in default.

The Court also observed that the French company had commercial substance and was not a tax avoidance device. Further, the retroactive amendments to the Act vide the Finance Act, 2012 have no impact on the interpretation of the tax treaty.

The ruling lays down the required guidance on applicability of tax treaty provisions along with important taxation principles.

Reimbursement and service tax

Under the Service Tax Valuation Rules, reimbursements are a part of the gross amount charged by the service provider. Thus, reimbursements are subject to service tax.

 Though there is a prescribed rule that keeps expenses incurred by a service provider in the capacity of a pure agent out of the service tax net, the conditions are too stringent and practically difficult.

The Delhi High Court in the case of Intercontinental Consultants and Technocrats Pvt Ltd opined that by seeking taxation of every reimbursement not qualifying the criteria for pure agent, the rules have tried to override the provisions of the Finance Act, as there is no such intention to tax every reimbursement.

There is a need to review the rules in accordance with the principles formulated by the Finance Act; it held the rules seeking taxation of reimbursement ultra vires the Finance Act.

 An important aspect to be noticed is that the High Court didn’t refer to other judgments in this regard, which sought to include reimbursements as part of taxable value and, hence, further challenge at the Supreme Court cannot be ruled out.

Grant Thornton

Deccan Chronicle board approves restructuring option

Livemint :Yogendra Kalavalapalli   |  Viswanath Pilla  :: Fri, Feb 22 2013. 10 31 PM IST

Firm tells stock exchanges the compromise formula could pave the way for the restructuring in order to pay off debts

Hyderabad: Debt-ridden publishing house Deccan Chronicle Holdings Ltd said Friday its board approved a proposal to arrive at a compromise with its lenders in line with provisions of the Companies Act.

The company told stock exchanges that the compromise formula could pave the way for the restructuring of the company in order to pay off debts amounting to over Rs.3,987.50 crore as of 30 September 2012.

The company has defaulted on debentures worth Rs.150 crore which has led to several creditors including financial institutions approaching the Andhra Pradesh high court and the debt recovery tribunal seeking to wind up the company to recover dues.

“If the company is in difficulties, the lenders are not going to get their whole money back. There has to be a compromise,” said Sanjay Kallapur, professor of accounting at the Indian School of Business. Kallapur explained that bringing different lenders to an agreement would be difficult as each of them would have their own interests. “Therefore, as long as the 75% of them agree, the court has the power to enforce that agreement.”

Shares of Deccan Chronicle Holdings rose 1.79% to Rs.4.55 while the benchmark Sensex declined 0.04% to 19,317.01 points.

Deccan Chronicle’s management couldn’t be reached for more information on the proposed scheme. A spokesperson of Yes Bank declined to comment on the latest move by DCHL’s board. He said the bank has initiated the process of recovery through legal means. Yes Bank has an exposure of Rs.194 crore to DCHL, of which Rs.126 crore is still outstanding. The bank has approached the debt recovery tribunal to recover the amount. “This could be part of revival plan for the company,” said Ramesh K. Vaidyanathan, managing partner at Mumbai-based corporate law firm Advaya Legal. “They have applied for demerger. The demerger could be a precursor to sale to a third party… They could be planning to sell loss-making businesses.”

Kallapur said a compromise formula could entail various arrangements. “May be the company and the same management can operate provided these guys (creditors) agree to reduce their claims or they (DCHL management) might try to find a strategic investor. Or they might try to sell this company to another company.”

The financially troubled publisher of Deccan Chronicle, Financial Chronicle and Asian Age newspapers and the Telugu daily Andhra Bhoomi has been dragged to courts by various financial institutions such asIFCI Ltd, Jammu and Kashmir Bank Ltd, Axis Bank Ltd, ICICI Bank Ltd, Kotak Mahindra Bank Ltd, Yes Bank Ltd, Tata Capital Ltd, PVP Capital Ltd, National Pension System Trust, and Royal Sundaram Alliance Insurance Co. Ltd seeking to strip it of its assets.

Besides these institutions, Hong Kong-based newsprint supplier Adonis Ltd and Chennai-based print trader Photon Infotech Pvt. Ltd have also moved the high court of Andhra Pradesh.

According to DCHL’s September quarter earnings statement, the company had long-term borrowings ofRs.147.20 crore and short-term borrowings amounting to Rs.3,755.70 crore. Its total liabilities, both current and non-current, amount to Rs.4,207.54 crore.

Faced with a spate of winding up petitions by lenders, DCHL is exploring all its options for a settlement, analysts said.

“The road ahead would be difficult for the company, given its loans are much beyond the enterprise value of the company,” said Satish Kantheti, head of the equity research division at Hyderabad-based brokerage house Zen Securities Ltd.

Some of DCHL’s lenders have classified the loans as non-performing assets. A few have also invoked promoters’ shares pledged as collateral after they failed to repay loans, leading to the shareholding of the promoters—chairman T. Venkattram Reddy, vice-chairman T. Vinayak Ravi Reddy and managing director P.K. Iyer—falling from 73.83% as of June 2012 to 32.66% at the end of the December quarter.

The company’s woes began with the resignation of its former managing director N. Krishnan in July.

The company’s stock continues to remain untraded on the National Stock Exchange after trading was suspended in January owing to non-disclosure of financial results.