SBI abandons bullish bond bias on RBI stance
STATE BANK OF India is becoming more cautious on its bond investments, surprised by the hawkish minutes of the Reserve Bank of India’s latest policy meeting. “I was neutral with a bullish bias earlier, now I am just neutral,” C Venkat Nageswar, deputy managing director and treasury head at SBI, said in an interview. The minutes “were more hawkish than expected,” with the stance taken by a couple of members being “a surprise for us,” he said. The yield on India’s benchmark 10-year sovereign bonds jumped to 6.95% on Wednesday, its highest close since September. That’s after minutes of the RBI’s April 5- 6 meeting released last week showed policy makers expressed concerns over inflationary pressures, with one of the six panel members even suggesting a pre-emptive increase in the repo rate. Nageswar predicts the 10-year yield, which was at 6.94% on Friday, to range between 6.80% and 7.10% till September. That compares with his band of 6.706.95%, with a bias toward 6.70%, before release of minutes. The yield will drop to 6.85% by September, according to the median estimate of economists surveyed by Bloomberg News between April 21 and April 26. “There is reason for us to be more careful on yields,” Nageswar said, adding that he is now a little less confident that the RBI won’t increase rates by December. “The strategy is premised on bond markets not giving easy profits from falling yields. We would still be looking at the shorter end, but now we would need to be more opportunistic in terms of timing the purchases.” Nageswar said he expects the benign cash conditions and demand from yield- hungry foreign investors to provide support to bonds. Overseas funds boosted holdings of government and corporate debt by Rs.36,000 crore ($5.6 billion) between January and March, helping the rupee surge 4.7% to cap its biggest first- quarter gain since 1975.
Usha Martins Lenders Strip Basant Jhawar of Special Powers
Lenders have stripped debt-ridden speciality steel producer Usha Martin’s chairman emeritus, Basant K Jhawar, of special powers as they attempt to arrest the company from slipping into further distress. Basant Jhawar is also founder of the company. The decision was taken on Tuesday along with the decision to sack Basant Jhawar’s son Prashant Jhawar as chairman on grounds that “he was not working in the best interest of the company.” Prashant has submitted his resignation from chairmanship but will stay as a director on the board while G N Bajpai, former chairman of Securities and Exchange board of India has been appointed the new chairman. The resolution to strip Basant Jhawar of special powers and ousting his son was initiated at the behest of country’s
largest bank, State Bank of India. “Promoters performance is not aligned in the interest of the company which prompted lenders to act,” said a senior SBI official who did not want to be identified. Lenders have a loan exposure of Rs 5,000 crore to the company which reported a loss of Rs.109 crore in the quarter ending December 2016. The differences between lenders and Jhawar cropped nine months ago when Usha Martin borrowed Rs, 1190 crore from banks for expansion of their steel business. For this, bankers insisted that the promoters pledge their shares and provide guarantees. Prashant Jhawar and his father Basant K Jhawar – who own about 25% stake — agreed to pledge just half of their shareholding. This irked lenders who wanted them to comply with the agreed covenants signed in December 2015. Lenders were keen that promoters pledge shares since it covers the entire loan exposure of the company. Of the 12 directors, nine attended the board meeting and eight voted in favour of stripping Jhawar’s special powers and removing his son as chairman. Rajeev Jhawar, MD of Usha Martin (a cousin of Prashant), abstained from voting while Prashant and his father B K Jhawar did not attend the meeting since he felt it was “improperly convened”. Rajeev’s father BrijJhawar too did not attend the meeting and sought leave of absence. In December 2015, B K Jhawar was given special power by the board to run the company. One of the key benefits of having special power was that BasantJhawar could seek any information of the operation of the plans and the company had to provide the same immediately. Lenders fear that with special powers, the promoters could interfere in the sale of the rope wire business as both Prashant and B K Jhawar tried to block that in the past. Prashant had placed a Rs.1,350 crore proposal from private equity firm Apollo for the wire ropes business. Since the item was inserted into the agenda just a day before the meeting, without informing the company's MD Rajeev Jhawar or the CFO, board members suspected the deal was being done without due process. In December 2016, when an internal exercise valued the wire rope business at Rs 2,500 crore, Prashant and B K Jhawar objected to it, which made lenders suspicious that his interests were not aligned to those of UML. On Tuesday Prashant Jhawar said: “The declining performance of UML and its massive debt-interest burden are amatter of grave concern to me and my father, who is the founder of UML.” For these reasons he wanted set some conditions prior to invocation of further borrowings by UML, but the lenders did not seem to be convinced.
Lenders remove Prashant Jhawar as nonexecutive chairman of Usha Martin
Lenders led by State Bank of India, on Tuesday, removed Prashant Jhawar as non-executive Chairman of the Rs.3,500- crore turnover company Usha Martin Ltd. The decision was taken at a board meet requisitioned by the lenders. Prashant, who is based out of London and a co-promoter of Usha Martin, is replaced by GN Bajpai, former chairman of SEBI and LIC, as non-Executive Chairman. The change was notified in the stock exchange. Usha Martin is a leading manufacturer of wire ropes with plants located in India and abroad. It also produces speciality steel and has mining right in India. In a press release issued from London, Prashant claimed that he was improperly removed from chairmanship. He and his father BK Jhawar, ChairmanEmercontacteditus of the company, did not attend Tuesday’s board meet. Apparently, the company was witnessing differences between Prashant and his cousin Rajeev Jhawar on company operations. Rajeev is managing director of the company. Declining performance “This action has been taken when BK Jhawar and I have been actively questioning the management regarding declining performance of Usha Martin,” Prashant said. According to him, the company’s declining performance, massive debt-interest burden and, the capacity of the company to withstand further borrowings — as was approved by bankers — was a matter of grave concern to him and his father. The company’s profits were on a decline since FY-11, despite rise in turnover. Dispute over pledging the decline in profits was faster since 2014. It made a loss of Rs 404 crore in FY-16. The losses in December 2016 quarter stood at Rs.108 crore. While Rajeev could not be contacted, sources in the banking circle told Business- Line that Prashant was removed for not cooperating with the bankers’ effort to keep the company afloat by offering fresh loans to tide over the crisis. According to them, the company was extended a few hundred crore fresh finances to develop the coal mine (won through the competitive bidding) among other things. As part of the deal, bankers wanted both the promoters to submit personal guarantee and pledge their shares. Rajeev complied but Prashant was reluctant. He refused to give personal guarantee and later agreed for pledging on certain condition that this could not be used for fresh borrowings. “Prashant was reluctant to abide by the conditions given by lenders,” the source said. Reportedly, bankers have already forced the company to change the finance director. Next on the cards is appointment of professional MD.
C Venkat Nageswar, Deputy Managing Director and Treasury Head at SBI
Prashant Jhawar, Usha Martin