Tata Steel 10-mln-tn capacity add to be domestic, says Chandrasekaran

28 Jun 2022

Tata Steel Ltd’s targeted expansion of annual steel capacity by 10 mln tn will take place over a long period and it will all be within the country, its chairman, N Chandrasekaran, told shareholders in the company’s annual general meeting today.

The expansion will raise the domestic annual steel capacity to around 30 mln tn from 20 mln tn, he said.

The company was currently focused on increasing annual capacity in Kalinganagar to 8 mln tn from 3 mln tn, according to its annual report for 2021-22 (Apr-Mar).

Its capital expenditure in last financial year was 62.9 bln rupees primarily on account of the expansion project in Kalinganagar.

Tata Steel had recently acquired Neelachal Ispat Nigam whose site was in proximity to the company’s Kalinganagar site. Chandrasekaran told shareholders that the company “will endeavour to ramp up the operations of NINL (Neelachal Ispat Nigam) to its rated capacity of 1.1 million ton per annum within the next 1 year, subject to obtaining statutory clearances.”

There were no plans to increase steel capacity in its facilities in Europe and UK, he said.

In October last year, Tata Steel had spun off its UK and Netherlands operations into two independent subsidiaries “pursuing separate strategic paths”, according to its annual report.

Addressing shareholder queries on how soon the company intends to have zero net debt, Chandrasekaran said the company’s intent was not to take the net debt levels to zero as that would make its capital allocation inefficient.

He said Tata Steel was comfortable with the current capital allocation policy goal of bringing down debt by $1 bln (nearly 79 bln rupees) every year. At the end of 2021-22, the company’s consolidated net debt was 510.5 bln rupees, down from 753.9 bln rupees a year ago.

Responding to shareholder questions on the trend in price of steel in Apr-Jun quarter, so far, for the company, Chandrasekaran said there was a downward correction of 15%.

Lower steel prices will translate into reduced revenues for Tata Steel.

“But there is also a correction in coking coal price to the extent of 30-35%,” he said. Coking coal makes up for 40% of Tata Steel’s production costs and the company imports 80% of its coal requirement.

The fall in coal prices will cancel out the impact of fall in steel price on the operating margin, according to Chandrasekaran.

In response to a shareholder’s query on speculation that Tata Steel has been importing coal from Russia, Chandrasekaran said that it was not the case and that the company was importing coal only from Australia “at this point in time”.

Moody’s cautiously upgrades Tata Steel’s rating outlook to positive

27 Jun 2022

Moody’s Investors Service today said that it had changed the rating outlook on Tata Steel Ltd to positive from stable. The rating agency also retained Tata Steel’s Ba1 corporate family rating.

The rating outlook upgrade by a notch by Moody’s was based on its assumption that Tata Steel’s debt to earnings before interest, tax, depreciation, and amortisation ratio would remain below 1.5 times over the next two years while the company consistently generates positive free cash flow.

Moody’s was impressed by Tata Steel’s capital allocation policy that prioritised debt reduction over capital expenditure and new investments. But it said that it was still cautious in its forecasts for Tata Steel.

The rating outlook upgrade by Moody’s was after factoring in an EBITDA per tonne decline to $140-$150 in 2022-23 (Apr-Mar), and further to $40-$50 in 2023-24, from $180 in 2021-22.

Tata Steel’s EBITDA per tonne is estimated to decline due to lack of vertical integration at its European operations “and the wide swings in the business’ profitability in previous years,” said Moody’s.

Looking at Tata Steel’s liquidity metrics, the rating agency said that the company’s $3.1 bln in cash and liquid investments at the end of March 2022 indicated a good liquidity position.

But it cautioned that “given the inherently volatile steel industry, some unevenness in intra-year working capital is likely, which could lead the company (Tata Steel) to continue relying on short-term 364-day working capital facilities.”

Cochin Shipyard allowed by SEBI to use ETF route for public shr norm

24 Jun 2022

Cochin Shipyard Ltd, a government-owned company, has been permitted by the Securities and Exchange Board of India to comply with the 25% minimum public shareholding requirement by way of government reducing its stake through CPSE Exchange Traded Fund issue in February 2020.

The company said in an exchange filing today that SEBI has given a one-time relaxation on the sale of shares by the government, as a method to comply with the minimum public shareholding norm.

After a buyback of shares by Cochin Shipyard in October 2018, the public shareholding had fallen to 24.79%.

Following the CPSE ETF tranche of February 2020, the company’s promoter holding went up to 27.14%. But since the method was not a part of the approved methods of meeting the 25% minimum public shareholding norm SEBI had directed the company to comply by December 2020.

Subsequently, the company said, the government requested SEBI to allow disinvestment through the ETF route as one of the methods for achieving the compliance with the minimum public shareholding rule.

Varun Beverages chairman settles insider trading norm breach probe

 22 Jun 2022

The chairman and promoter of Varun Beverages Ltd, Ravi Kant Jaipuria, has paid 5.6 mln rupees to the Securities and Exchange Board of India to settle an investigation against him for allegedly having violated the insider trading norms.

According to a settlement order issued by SEBI on Tuesday, a show cause notice was issued to Jaipuria for having allegedly passed on unpublished price sensitive information pertaining to a strategic partnership between Varun Beverages and PepsiCo India during December 2017 to January 2018.

SEBI was probing whether Jaipuria, who was also a director in Lemon Tree Hotels, had communicated the information to two directors of Lemon Tree Hotels, chairman and managing director, Patanjali Keswani, and independent director, Arvind Singhania when they met in a hotel in Bangkok.

SEBI investigation had found that shares of Varun Beverages were bought by two entities controlled by Keswani and Singhania during the period when news of partnership with PepsiCo India was not in the public domain and sold it all immediately after the news was announced by Varun Beverages and the prices had moved up in reaction to the announcement.

SEBI Watch: RIL insider trading case highlights need for clarity in norms

21 Jun 2022

The insider trading regulations of the Securities and Exchange Board of India are one of the key pillars of investor protection.

It ensures that, on a continuous basis, price sensitive information within a company is brewing it is kept under tight wraps till it is made public and all those in the know-how of such information, including deemed insiders, do not trade and profit from it.

Secondly, when the information is required to be made public under the listing and disclosure norms then it is made public for all and not selectively.

These principles were in full play in the order by SEBI on Monday against Reliance Industries Ltd imposing a penalty of 3 mln rupees on the company for not clarifying, on a suo moto basis, upon media reports claiming that Facebook was close to signing a preliminary agreement to buy a multi-billion dollar stake in Reliance Jio.

The information revealed in the news report, without an ensuing suo moto clarification by the company, was clearly price sensitive in nature and its revelation amounted to leakage of unpublished price sensitive information that was known only to select company officials and non-company persons who are considered as deemed insiders under the norms.

Although the company made a formal announcement of the deal a month later SEBI held it accountable for abdicating its responsibility to issue a timely clarification.

The company protested that the stock exchanges did not seek a clarification from it as covered in the listing and disclosure norms and that suo moto clarification provision in the norms was voluntary and not mandatory.

This is indeed the case when it comes to specific clauses in the norms. Reliance Industries had also said, in its response to SEBI’s show cause notice in the case, that there was “constant speculation in the media and on social media platforms about RIL's (Reliance Industries Ltd’s) business and operations, and it would be impossible for RIL to track every news report and confirm or deny the same suo moto.”

SEBI, in its order, was right in applying the overarching principles of the insider trading norms and its connected provisions in the listing and disclosure norms.

But it must address the strong counter made by Reliance Industries that specific clauses in the norms did not cast a mandatory obligation on a listed company to clarify on any and all media reports.

There is clearly a grey area in the regulations and SEBI would do well to amend it to remove the ambiguity.

Reliance Industries also contended strongly that at the time of the initial media reportage the due diligence process was still going on and there were only tentative agreements on valuations. It told SEBI that no credible and concrete information had got created and so there was no obligation on it to clarify.

Listed companies are frequently in talks with entities for striking agreements or deals, and the stage of finality is reached only when the board of the company and the other entity approve it.

Most of the time the talks do not conclude in legally-binding deals.

But SEBI was right in dismissing this point on the ground that any information that is price sensitive, including a listed company’s ongoing talks with other entities for striking deals, came under the scope of unpublished price sensitive information and consequently attracted the application of insider trading norms.

The provisions of the insider trading norms and its connected provisions in the listing and disclosure norms have evolved over the years but there are still some grey areas that need to be tackled.

SEBI fines RIL, officials 3 mln rupee for insider trading norm breach

20 Jun 2022

The Securities and Exchange Board of India today fined Reliance Industries Ltd and two compliance officers of the company 3 mln rupees for breach of insider trading regulations.

In its order, SEBI said that unpublished price sensitive information pertaining to a likely deal between Facebook and Jio Platforms was not clarified upon by Reliance Industries for nearly a month after the media first reported it on March 24 and March 25, 2020.

The media report had said that Facebook was seeking to buy a multi-billion dollar stake in Reliance Jio and that it was close to signing a preliminary deal.

On April 22, 2020, Reliance Industries made a formal announcement that Facebook was investing 435.7 bln rupees in Jio Platforms for 9.99% stake.

SEBI held that the insider trading norms imposed an obligation on Reliance Industries to clarify on the matter when the deal got reported upon in March since it was a price sensitive information. But the company failed to take initiative in issuing any clarification and committed a breach.

Reliance Industries contended before SEBI that at the time of the media reportage in March the due diligence was still going on and there were only tentative agreements on valuations. It told SEBI that since no credible and concrete information had got created at that time no obligation was cast upon it to suo moto clarify on the media report.

The penalty of 3 mln rupees will have to be paid jointly and severally by Reliance Industries and two compliance officers, the SEBI order said.

SEBI’s income surplus fell in FY21, for the second consecutive year

20 Jun 2022

The surplus of income over expenditure of the Securities and Exchange Board of India fell for the second consecutive year in 2020-21 (Apr-Mar) causing the accumulated income surplus, or SEBI’s General Fund, to record a low single-digit growth for the second year running, according to audited annual accounts for 2020-21 (Apr-Mar) released by it today.

SEBI earned an income surplus of 1.59 bln rupees in 2020-21, down nearly 30% on year. In 2019-20 too it had fallen sharply, by 52% to 2.24 bln rupees. Prior to that, it had recorded a growth of 6% in 2018-19 and 21% in 2017-18.

The capital market regulator has accelerated its spends on operational matters in the last two years while the growth in income from fees and other charges levied on market intermediaries has not kept pace.

This is interesting because the 2020-21 was second year of the effect of a new government rule which required SEBI to transfer 75% of its annual surplus of income over expenditure to the government exchequer. This new rule may have spurred SEBI to spend more on establishment-related items and also on technology.

Fee income stayed flat at 6.1 bln rupees in 2020-21, while establishment expenses rose 16% on year to 4.38 bln rupees. In the previous year, 2019-20, the fee income had dropped 19% to 6.08 bln rupees and establishment expenses had risen sharply by 28% to 3.76 bln rupees.

The establishment expenses of SEBI are mainly on account of staff salaries, staff allowances and bonus, staff welfare expenses, provisions for gratuity and leave encashment.

Overall, in 2020-21, SEBI’s total expenses were up by 13% on year to 6.67 bln rupees and total income inched up by 2% to 8.26 bln rupees.

In the market regulator’s financial accounts, the annual income surplus gets added to its General Fund.

The General Fund of SEBI represents the accumulated annual surplus of all years and its corpus stood at 44.59 bln rupees as of March 31 2021, up by only 4% from the year ago level. In 2019-20 too, the General Fund had gone up by just 6% to 43 bln rupees at the end of the year.

Since the General Fund serves as the pivotal account to tap into for capital expenditure like technology upgrades and acquisition of new software, hardware and network systems for improving surveillance, enforcement and other regulatory matters.

The Investor Protection and Education Fund, like the General Fund, sits on the liabilities side of SEBI’s balance sheet, and its corpus saw a substantial rise to 8.83 bln rupees in 2020-21 from 1.28 bln rupees in the previous year.

SEBI’s annual report for 2021-22 is expected to be released in the next couple of months, while the annual accounts for the year will follow next year.

MFs sold ACC, Ambuja Cem shares in May in likely reaction to Holcim exit

17 Jun 2022

Domestic fund houses sold shares of Ambuja Cements Ltd and ACC Ltd in May during which their promoter, Holcim Group, announced that the Adani Group was buying its entire stake in Ambuja Cements and ACC for a cash payment of 501.8 bln rupees.

Mutual fund schemes, collectively, cut the number of shares they held in Ambuja Cements by 3.8%, and that in ACC by 7.1%, in May as compared to their collective holding in April, data by brokerage East India Securities showed.

The Holcim-Adani deal was announced on May 15 and it triggered the mandatory open offers by the Adani Group to buy 26% stake each from the public shareholders of Ambuja Cements and ACC.

At the declared open offer price of 385 rupees for Ambuja Cements, the Adani Group would pay 198.8 bln rupees to the public shareholders assuming full acceptance. Similarly, for ACC, it would pay 112.6 bln rupees at its declared open offer price of 2,300 rupees.

Mutual funds collectively net sold 4.9 mln shares of Ambuja Cements shares in May from their April-end holding of 130.3 mln shares. Based on the company’s average closing price of 365.7 rupees in May, the net selling would have been for around 1.79 bln rupees.

In ACC, mutual fund net selling was for 1.22 mln shares which bought down their collective holding to 16 mln shares at the end of May from the end of the previous month. Based on the company’s average closing price 2,219.7 rupees in May, mutual funds would have sold ACC shares worth around 2.7 bln rupees.

According to analysts the selling by mutual funds was likely in reaction to the Holcim-Adani deal, although the data did not indicate it took place before or after May 15 when the deal was announced.

The mutual fund selling was not across the board in cement sector stocks, indicating that the selling in Ambuja Cements and ACC was extraordinary.

In UltraTech Cement Ltd, for instance, fund houses collectively bought shares adding 1% to their collective holding, while in case of Shree Cement Ltd, they sold shares and pared their exposure by just 1%.

Among the fund houses, the major sellers in Ambuja Cements included PGIM India Mutual Fund which sold 3.5 mln shares amounting to 99.1% of its holdings as on Apr 30. Mirae Asset India Mutual Fund sold 7.4 mln shares, or 30% of its holdings, while HDFC Mutual Fund sold 1.5 mln shares and pared its stake in the company by 9.2%.

On the other hand, there was significant buying of Ambuja Cements shares by Quant Mutual Fund, Nippon India Mutual Fund and Mahindra Mutual Fund. Quant MF bought 4.6 mln shares raising its holding in the company to 7.6 mln shares from 3 mln shares, while Nippon India MF bought 3.1 mln shares and doubled its holding in the company.

In ACC, major mutual fund sellers were HDFC MF, Franklin Templeton Mutual Fund, PGIM India MF and DSP Mutual Fund, while major buyers were Tata Mutual Fund and SBI Mutual Fund.

Analysts do not expect the same rate of selling by domestic fund houses in the current month as the share prices of Ambuja Cements and ACC have slipped sharply below their respective open offer prices. The tendering period for the open offer has been tentatively fixed as July 6 to 19 by the Adani Group.

SEBI fines Zenith Steel, others 108 mln rupees for GDR fraud

16 Jun 2022

The Securities and Exchange Board of India today levied penalties aggregating to 108 mln rupees against Zenith Steel Pipes & Industries Ltd and six other entities for fraud committed in the company’s global depository receipt (GDR) issue in May 2010.

Zenith Steel Pipes & Industries was levied a penalty of 100 mln rupees, while its managing director, three other directors, and two other entities were fined a total of 8 mln rupees.

In its investigation, SEBI held that $23-mln-GDR issuance of Zenith Steel Pipes & Industries in 2010 was fraudulent.

The company, its directors and two entities, Arun Panchariya and Mukesh Chauradiya were involved in the dubious issue where the proceeds from the GDR issue were pledged with a foreign bank which then provided a loan to a Panchariya-controlled entity to subscribe fully to the GDR issue.

The company projected misleading information to investors when it notified that its GDR issue was fully subscribed by a set of eight investors. This misled the domestic investors and breached SEBI's listing norms and norms on prohibition of fraud in the market.

The company also did not make any disclosures of the pledge agreement and certain other agreements of credit and account charge which were a part of the fraudulent scheme of things.

SEBI issues penalty recovery notice to BSE, NSE in Karvy Broking case

15 Jun 22

The Securities and Exchange Board of India today raised a notice of demand for recovery of penalty of 30.9 mln rupees, including interest, from BSE Ltd and another one for recovery of 20.6 mln rupees, including interest, from the National Stock Exchange of India.

The notices were sent to the two exchanges for not complying with SEBI’s orders in April against them in the Karvy Stock Broking case.

On April 12, SEBI had imposed penalties on the NSE and BSE, through two separate orders, for their failure in timely detection of the fraudulent conduct of Karvy Stock Broking which had membership on both the exchanges.

The NSE was fined 20 mln rupees while the BSE was directed to pay 30 mln rupees in the SEBI orders.

In its orders, SEBI said that Karvy Stock Broking had misutilised client securities worth 23 bln rupees belonging to more than 95,000 clients by illegally pledging them from its demat account and raising funds against the pledges for itself and its group entities.

“The scale of misuse by KSBL (Karvy Stock Broking Ltd) points to the loss to investors which can potentially be caused when irregular conduct is not detected in a timely manner,” SEBI said in its orders, and held the two bourses responsible for not having checks and balances in place which could detect the fraud much earlier.

SEBI’s first order, an interim one, in the Karvy case was issued on November 22, 2019 when it barred the brokerage from taking new clients and imposed other restrictions.