SBI aban­dons bullish bond bias on RBI stance

Business Sphere - - STATE BANK OF INDIA - By Our Cor­re­spon­dent

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

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