OPINION, P6 ECONOMY, P2 MADAN SABNAVIS Insolvency rules may be a bit harsh but they are pragmatic INTERNATIONAL, P4 SUNIL JAIN FOOD STOCK ISSUE EU TRADE DEAL Harmonise 900 MHz band to help telcos get more spectrum & govt more money Prabhu says India to seek permanent solution at WTO Brexit secy Davis says UK wants best parts of bloc’s deals with other nations MUMBAI, MONDAY, DECEMBER 11, 2017 FOLLOW US ON TWITTER & FACEBOOK. APP AVAILABLE ON APP STORE & PLAYSTORE VOLUME XXXXXV NO. 227, 16 PAGES, `6.00 P U B L I S H E D F R O M : A H M E D A B A D , B E N G A L U R U , C H A N D I G A R H , C H E N N A I , H Y D E R A B A D , K O C H I , K O L K ATA , L U C K N O W, M U M B A I , N E W D E L H I , P U N E WWW.FINANCIALEXPRESS.COM READ TO LEAD PROMOTER BIDDING UNDER IBC Moral hazard issue is a serious one: Panel If promoters allowed to regularise their accounts and bid, it would make them wilful defaulters; criteria may need to be tweaked for SMEs in round 2 THYSSENKRUPP HAS OFFERED workers commitments on jobs and investments to get union backing for its deal with Tata Steel to merge their European steel operations, sources said, reports Reuters. Details of the offer are to be discussed at a meeting of management and labour representatives on Tuesday. (Left) Winners of the FE Best Banks Awards with Union minister Nitin Gadkari in Mumbai. (Right) Former SBI chairman Arundhati Bhattacharya with Kotak Mahindra Bank managing director Uday Kotak at the event. While Bhattacharya was awarded the Banker of the Year, Kotak took home the Lifetime Achievement Award McDonald's eyes new partner AFTER MONTHS OF intense battle with its Indian JV partner Vikram Bakshi, fast food giant Mcdonald's India may soon appoint a licensee partner for north and east India, reports PTI. In August, McDonald's had terminated franchise agreement for 169 out of its 430 outlets run by the Bakshi-led CPRL in north and east India. FORMER STATE BANK of India (SBI) chairman Arundhati Bhattacharya has said the issue of moral hazard was an important issue in the context of the resolution under the IBC (Insolvency and Bankruptcy Code), recently amended to bar promoters from bidding for their assets.Bhattacharya said if promoters were allowed to regularise their accounts and bid, it would make them wilful defaulters.“If they can bring in the money now, it means they had the means, so why did they not bring it in earlier?” “What is the moral hazard? It is that the same people who could not run a company, for whatever reason, would get it at a much lowerprice.The hazard is that others, who may not have the problem,would deliberately do things so that they can pare their debt and come back. It is because of this moral hazard that the Ordinance has been NEW POLICY Special Features Research that matters: Microsoft India lab at forefront From delving into mixed language usage to addressing the tuberculosis epidemic with cloud and mobile technology, Microsoft Research Centre in Bengaluru is pushing the frontiers of knowledge ■ EFE, P8 How to prevent your insurance claim from being rejected To avoid any possibility of dismissal of your insurance claim, always fill in correct details regarding your health, occupation, income and family history of illnesses ■ Personal Finance, P9 QuickPick Stressed asset valuation: New pricing norms by FY18-end AMID DIFFERENCES between lenders and bidders on the proper valuation of a stressed company, the Centre is considering a proposal to ask insolvency resolution professionals to get the enterprise valuation of the firm done, , a senior official told FE, reports Banikinkar Pattanayak in New Delhi. The current practice is to assess only the liquidation value of a stressed company. PAGE 2 Discoms may shell out `18k cr extra Mandated to put in place PPAs to meet 100% of their electricity ‘requirement’ ANUPAM CHATTERJEE New Delhi, December 10 IF STATE-OWNED DISTRIBUTION companies (discoms) are mandated to put in place power purchase agreements (PPAs) to meet 100% of their electricity “requirement”, they may end up shelling out extra `18,000 crore annually, whether or not they consume the extra power. Currently,it is mandatory for discoms to pay PPA-equipped generation units the capacity charge,roughly40% of the tariff, even if they do not have any use of the power. The new policy could hit discoms while the Uday scheme has helped them cut their interest costs by `15,000 crore since November 2015. The government’s rationale fortheproposed100%PPApolicy seemstobetodiscouragediscoms from rushing to the expensive spotmarkettomeetdemandduringpeakhours.However,inthefinalanalysis,theadditionalcostof payingthecapacitychargeagainst unutilised PPA units could be higherthantheexpensesincurred forspot market purchases. Continued on Page 2 POWER STRUGGLE ■ Currently, it's mandatory for discoms to pay PPA-equipped generation units the capacity charge ■ Capacity charge is roughly 40% of the tariff, even if discoms do not have any use of power ■ New policy could hit discoms while Uday has helped them cut their interest costs by `15,000 cr since Nov 2015 FACED WITH `900-CR DEMAND Finmin asks SSC to hike exam fees instead PRASANTA SAHU New Delhi, December 10 WITH THE STAFF Selection Commission (SSC) anticipating a three-fold jump in its expenses to `900 crore,job seekers sitting for the examinations may have to fork out much higher fee.The central recruitment agency plans to take all tests online from 2018-19 and expects a big increase in number of applicants given several new posts have been created. The SSC’s income is roughly a quarter of its expenditure. For the current fiscal,the government will meet three- Staff Selection Commission Income (` crore) 104 FY14 900 Expenditure R 62 300 70 125 FY15 EXPRESS PHOTO: DILIP KAGDA EXPRESS PHOTO: NIRMAL HARINDRAN IN THE NEWS Thyssenkrupp makes offer to workers for Tata Steel deal 67 145 FY16 70 FY17* fourths of the agency’s expenditure of `300 crore. The gap between SSC's income (mainly from the fees paid by job applicants) and expenditure is expected to rise to around `800 crore next year. According to official sources, the department of expenditure Recruitment via SSC (2016-17) Upto Jan 1 Applications 1,21,87,546 NA FY18^ *Provisional ^Proposed Candidates selected 11,779 in the finance ministry, which has received a heftybill from the SSC, has asked it to find ways to enhance its internal resources. Essentially, this would mean a big hike in application and exam fees charged by the body. Continued on Page 2 `100 Current application fee for general candidates, no fee for SC/ST, physically handicapped, and Ex-servicemen `300 Estimated cost per candidate for tests in 2018-19 due to rise in logistical costs brought in,”Bhattacharya said at a panel discussion at the FE Best Banks Awards. She observed that while this may not be done in the rest of the world, it was because any failurewas attributed to genuine reasons.“In India,there is a deep distrust in what is happening and this Ordinance is an expression of that.We need more trust in the system. Once there are more checks and balances, and we can track why a company has failed, we may see an evolution of the law,”Bhattacharya said. Uday Kotak, executive VC &MD,Kotak Mahindra Bank,acknowledged the reality of the moral hazard, but said that with the law now in place it was important to see how the process wouldwork.“Forlargerassetswe see bidders, especially given the steel cycle has turned forthe better. The key question is what happens to SME assets what happens if there is one orno bid- der? How do we make sure the process of bidding is fair?”Kotak believes it might beworth thinking about different criteria in the second round. Sajjan Jindal, chairman, JSW, said,“Worldwide promoters are allowed to bid if they are not wilful defaulters. In our context, I felt somebody borrows and for either his fault or some circumstances,is not able to fulfil his obligation.And if he then buys the asset for half the value, I don’t think we are setting the right standards. I felt that if somebody is paying every rupee back to banks and if his competitor gets a 50% discount, the first person feels cheated. Then he will say that I will go to NCLT and get a 50% discount,” Jindal observed. On the possible structure of bids, Kotak observed it would most likely be a banker or financier who would lend to the company.“With that all existing debtswill be cleared.If the enterprisevalue isX,the debtvalue remains the same and that is how it is structured. If the promoter brings in that money as equity,it helps prospective bidder to be more efficient. It will be money into the company by a new lender, repaying some lenders but overall debt remaining the same,”Kotak said. Continued on Page 2
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