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Friday, June 23, 2017

Govt set to reform tariffs for future airports

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The civil aviation ministry is considering mentioning how much airport operators could earn through so-called aeronautical revenue from airports whose development contracts are being bid out, in an attempt to end regulatory uncertainty and reduce tariffs for both passengers and airlines.

The revenue of airport operators includes those related to flight operations (aeronautical revenue) and from other operations at the airport, such as retail. Currently, bidders develop the airport and then seek permission to levy a certain tariff from the ministry or the Airports Economic Regulatory Authority (AERA).

Under the new plan, the ministry plans to change the Airports Authority of India (AAI) Act and AERA rules to ensure that all airports whose development contracts are being bid out have a pre-determined tariff.

“If aeronautical tariff is pre-determined in the bid document, then AERA’s determination will not be necessary,” said an aviation ministry official who did not wish to be named. “It will remove a huge regulatory uncertainty.”

Airport investors will not have to come and “beg AERA or the aviation ministry” for a certain tariff, this person said. Nor will they have to put up with discretionary changes that accompany any change in government, he added.

The move will apply only to new airport development contracts and not affect AAI, which runs most of the civilian airports in the country; GMR Infrastructure Ltd-operated Delhi, Hyderabad airports, and the new Goa airport; GVK Power & Infrastructure Ltd run Mumbai or Navi Mumbai airport; and the Fairfax-run Bangalore airport.

The aviation ministry is expected to move a cabinet note on this shortly.

For passengers and airlines, this could mean cheaper airfares and aeronautical charges.

“The bid documents will say what building we want, the service delivery required and the aeronautical revenue we will give; the bidder will bid based on all this. It will make the project viable,” said the official cited earlier.

The new model could also enforce more discipline among developers. Over the past decade, several have run up costs in excess of estimates, and then had tariffs changed upwards to compensate. For instance, the cost of modernizing the Delhi and Mumbai airports more than doubled to $3 billion each.

The two airports, which were handed over to the developers in 2006, are the subject of reports by the government auditor, the Comptroller and Auditor General, Mint reported on 17 August 2012 and 12 December 2013. The reports say the aviation ministry, which was initially also the regulator, favoured the airport developers at several stages and took decisions that brought them windfall gains worth thousands of crores of rupees. GMR and GVK have denied the charges.

Both GMR and GVK declined to comment.

An analyst welcomed the new model. “This is the new trend being followed worldwide. This reduces the cost for the passengers,” said former AAI chairman V.P. Agarwal.

Stressed assets to be next big theme to play: Mahesh Singhi

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Mumbai: Mahesh Singhi, founder and managing director of Mumbai-based transaction advisory firm Singhi Advisors, has been on the forefront of investment banking in India for above two decades across sectors in private equity, debt and mergers and acquisitions (M&A). In an interview, Singhi comments on the current deal making environment and investors’ sentiment. Edited excerpts:

Private equity volume has declined significantly in the first quarter. Are the soaring valuations in public markets keeping PE funds away?

Yes; we do believe that high valuations in the listed space are impacting transactions in the unlisted space. The reason could largely be attributed to investors waiting to see exit performance improve in the aftermath of a funding crunch that has taken hold.

Currently, appetite for risk is low with consolidation, job cuts and roll-back of funding plans are underway. In our view, M&A will continue to remain of interest to financial and strategic investors in sectors like technology, life sciences and financial services.

Consolidation and fund raising would continue to spur the momentum dominating M&A specifically in the financial services, infrastructure and the life sciences sector. In financial services, the possibility of new business models emerging post demonetization, continued fund raising by NBFCs and a consolidation push by micro finance firms will play a big role in driving M&A activity.

Trends anchored on large transactions and consolidation across sectors are driving deal value and are expected to remain strong this year too.

Distressed assets resolution has been a dominant investment theme for a while but very little has happened on ground. Do you see that changing with the new regulations?

As far as Singhi Advisors is concerned, we are sitting on a good pipeline of deals in the making and our special focus this year will be distress asset M&As, given the high number of stressed companies gearing up for deals.

We see a huge business opportunity in government steps to address India’s mountain of soured loans.

The stressed assets space will be the next big theme to play. When decisions are taken in a time-bound manner, there is a greater chance that the corporate entity can be saved as a going concern, and the productive resources of the economy (labour and capital) can be put to the best use.

This is in complete departure from the earlier regime where there were delays leading to the erosion of the firm’s value.

What will be key drivers of M&A activity going forward? Do you see more strategic deals in the offing?

We expect to see more PE/ VC backed M&A exits, with an increase in the share of inbound FDI investment into India. Most large international PE fund heads are looking to deploy investments worth billions of dollars in India from both global as well as India-specific funds over the course of the next few years.

This coupled with the significant increase in dry powder with India-focused funds (estimated to be at six year high of $7.1 billion) can lead one to have a sanguine outlook about PE/VC investments and PE/VC exits in 2017.

Which sectors according to you will see higher deal activity ?

Select sectors like technology, life sciences and financial services are expected to attract significant investor attention in 2017. Consolidation and fund raising will largely steer the M&A momentum specifically in the financial services, infrastructure and the life sciences sector. Deal activity in the insurance sector will be driven by consolidation, coupled with the shareholding changes driven by FDI regulations. These twin themes will also favourably impact the deal activity for healthcare, while outbound M&A for pharma will anchor on Indian companies’ evaluating opportunities to consolidate in the regulated markets.

For infra, Infrastructure Investment Trusts (InvITs) is an emerging theme in 2017 as interest rates soften, coupled with their ability to provide low-cost financing.

Arunabh Kumar steps down as The Viral Fever CEO

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Mumbai: Facing allegations of molestation, Arunabh Kumar on Friday stepped down as the CEO of web entertainment channel The Viral Fever (TVF). In a statement posted on his Twitter handle, Kumar said he had decided to quit as he believes the organisation is bigger than the individual.

“I have decided to step down as TVF CEO. A lot has happened in the last three months which has mentally and emotionally drained me. However, I have faith and confidence that eventually truth will prevail,” he wrote on Twitter. Kumar was replaced by Dhawal Gusain, who has been with the company since 2015 as the COO.
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“Lot of people wanted me to say something or tell my side of the story, but I did not because I learend the hard way what happens when you say anything in haste. “We made a grave mistake, by reacting instinctively, in our first official response.

While no amount of apologies can undo the mistake, I would like to again apologise from the bottom of our hearts for letting you all down…,” Kumar wrote. He, however, will continue as the mentor for the content team.

Boeing said near $5 billion in Max 10 deals with Asian airlines

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Singapore/New Delhi/Jakarta: Boeing Co. is closing in on about $5 billion in orders from two Asian carriers for its longest-ever 737, people familiar with the matter said.

The US planemaker is discussing a deal with India’s SpiceJet Ltd for about 20 of the 737 Max 10 aircraft, said the people, who asked not to be identified as the discussions are private. Indonesia’s Lion Mentari Airlines PT is studying an order for at least 20 planes and perhaps as many as 50 from a combination of commitments and conversions of existing orders for smaller 737 Max jets, the people said.

The deals may be announced as early as next week, when Boeing is likely to unveil plans for the Max 10 at the Paris Air Show. The Chicago-based manufacturer is seeking a groundswell of orders to catch up to the fast-selling A321neo, Airbus SE’s largest narrow-body jet, which is capturing routes once dominated by Boeing’s out-of-production 757.

Negotiations haven’t been finalized, and agreements involving Boeing, SpiceJet and Lion could be delayed or fall apart, the people said. The 737 Max 10 is expected to sell for a little more than the shorter Max 9, which has a list price of $119.2 million before discounts that are customary for aircraft purchases.

Boeing is in talks with other companies including United Airlines for the Max 10, Bloomberg News reported last week.

Doug Alder, a Boeing spokesman, declined to comment. Representatives of SpiceJet and Lion didn’t immediately comment outside normal business hours.

Govt said to be planning policy revamp for $19 billion gold jewellery industry

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New Delhi/Mumbai: India, which vies with China as the top consumer of bullion, is working on new policies to improve transparency and help expand its $19 billion gold jewellery industry, according to people with knowledge of the matter.

The plans being worked out by the finance and commerce ministries along with industry groups should be finalized by the end of March next year, the people said, asking not to be identified because they aren’t authorized to speak publicly. D.S. Malik, spokesman for the finance ministry, didn’t answer calls to his cellphone, while a spokeswoman for the commerce ministry didn’t reply to an email seeking comment.

The start of a spot bullion exchange, to make gold supply more transparent and help enforce purity standards, is under consideration, the people said. An import tax of 10% could also be reduced as the government seeks to eliminate smuggling, they said. The plans also include a dedicated bank for the jewellery industry, according to one of the people.

The overhaul of India’s disorganized and fragmented gold jewelry industry is meant to bolster confidence among consumers, where the gifting of gold at weddings and festivals or its purchase as a store of value are deeply held traditions. Ensuring quality standards and allowing supply chains to be easily tracked are ways to enhance trust. The estimate for the size of the sector was given by the Mumbai-based India Bullion and Jewellers Association Ltd.

The measures could help underpin Indian demand, which is recovering after slumping to a seven-year low in 2016. Consumption is projected to rise to between 850 and 950 tonnes by 2020, from an estimated 650 to 750 tonnes this year, buoyed in the short term by a lower-than-expected goods and services tax to be implemented next month, the World Gold Council (WGC) said last week.

The government fixed the tax on gold at 3%, lower than the 5% feared by the industry, as it replaces more than a dozen domestic levies with a single duty. “The gold supply chain should become more transparent and efficient, and the tax reform could boost economic growth, which we see as supporting gold demand,” according to the WGC, a producer body that advocates for the metal.

Over the medium term, the sector will find it tougher to evade taxes as legal imports go through the banking system, and a full trail will now be established by the new nationwide tax compared with previous duties, which were levied at the state level only, Credit Suisse Group AG said in a note on Thursday.

Monetizing gold

The government is also keen to get the public to recycle its jewellery to reduce the nation’s reliance on imports. After a slow start to its plans to monetize the precious metal held in households and institutions, the government is looking to tweak the scheme and attract more participants, the people said, without giving details. The initiative, launched in November 2015, was aimed at returning an estimated 20,000 metric tonnes of idle gold to the financial system.

The commerce ministry is working with the Quality Council of India to make sure testing centers meet international purity standards and is seeking global recognition for its Bureau of Indian Standards (BIS) hallmark, the people said. Of about 30 bullion refineries in the country, only 10 are BIS certified, so far. The government also wants to bring the same quality control to the nation’s gold refineries, they said.

The WGC said last month that it’s working with the Indian government to create a spot gold exchange that may start up as soon as next year. The council has also said it supports cutting the import tax.

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