NEW DELHI: The US government is coming under intense pressure from lawmakers to act against India at the World Trade Organization (WTO) for what they say are violations of patent rules. The tough stance adopted by US lawmakers raises the pressure on the new Indian government to swiftly swing into action to check against potential damage to bilateral trade ties, which have taken a knock in recent months.
The demand to move the WTO was made during a meeting of the Senate finance committee on the US administration’s trade policy agenda last Thursday, a day after the US Trade Representative released a report where it refused to downgrade India for its intellectual property rights (IPR) regime.
Clearly, the US senators were not satisfied with the response and attacked their government for letting several developing countries, including India, China and Brazil, steal a march. “In 1990s, India and China had limited technical capacity. Now, they can use highly technical standards to advantage their domestic firms and extract American company’s intellectual property for their own use. And it’s a shakedown, plain and simple,” said Ron Wyden, who chairs the US Senate finance committee.
Some others went a step further and attacked India. “India’s been pursuing trade policies that undermine US intellectual property to promote its own domestic industries. What they are doing seems to me to be a clear violation of their WTO obligations…enforcement action at the WTO may be the most effective tool that we have to get India to change its behaviour,” said Orrin G Hatch, a Republican from Utah. Similarly, Democrat Robert Menendez pointed to specific concerns over “India’s pharmaceutical patent violations”.
In response, USTR Michael Froman said the authorities were concerned “about the deterioration of the innovation environment in India” but was awaiting a dialogue with the new government so that the concerns could be addressed.
He specially flagged two concerns, patents and compulsory licensing, issues that are of special interest to global pharmaceutical giants, which have been lobbying with the US authorities as well as with lawmakers. “We’ve been encouraging them to enter into a dialogue about other mechanisms for addressing legitimate concerns about healthcare in India and about access to medicines that do not violate our IPR,” Froman said.
Although the Indian government has indicated that it is open to a dialogue, it wants the agenda to include other areas of interest as well. At the same time, officials have ruled out any violation of India’s international commitments on IPRs, arguing that it issued a compulsory licence, which means it waived a company’s patent rights, over a cancer drug for affordability.
Similarly, the government maintains that denial of patents was allowed under section 3(d) of Indian Patent Act and did not violate WTO’s Agreement on Trade-Related Aspects of IPR (Trips) if there was no genuine invention or discovery and there was an attempt to merely tweak an existing product to continue with the patents. Officials have also pointed out that several US companies, including Abbott, Boeing and Honeywell, have praised India’s IPR regime.
(Source: The Times of India, May 6, 2014)
INSURERS INCREASE BETS ON STATE-RUN BANKS, ENERGY COMPANIES
India’s insurance companies have in the last three years quietly increased their investments in banks and other companies whose earnings are susceptible to regulatory changes. Analysts say these strategic investors are pinning their hopes on the longterm growth prospects of banks that are likely to play a crucial role in fuelling the expansion of India Inc in the next few years.
An analysis of the BSE 500 index shows insurance companies have focused on three themes: PSU banks, lenders that are potential takeover targets, and energy.
Insurers increase bets on state-run banks, energy companiesTheir stake in public sector banks has almost doubled on expectation an improved investment cycle will reduce non-performing loans. “Basically, banks play an important role when there’s recovery in the economic cycle. This is perhaps the reason why insurance companies have increased their stakes in banks in recent years,” said S Gopalakrishnan, head – investments at ICICI Lombard General Insurance.
In the next few years, public sector banks are expected to clock high earnings growth, which would enhance their asset quality.
Insurance companies have increased their holding in PSU banks such as Dena Bank, Union Bank, State Bank of India, United Bank, Bank of India, Punjab National Bank and Bank of Baroda.
In the last three years, for instance, they raised their holdings in Dena Bank to 16.5% from 6.3%, while their stake in India’s largest PSU bank SBI has gone up to 16.5% from 12.2% in the same period. On an average, the holding of insurance companies in stateowned banks has increased to 12.4% at the end March compared with 7.08% in March 2011.
Another feature that shapes their investment in banks is that these strategic investors are focused largely on banks that are potential takeover targets. Banks such as Karnataka Bank, Development Credit Bank (DCB) and Yes Bank are the ones where insurance companies have more than doubled their holdings. For instance, they raised their holding in Yes Bank to 14.28% in March against 4.7% in March 2011. ET had reported on April 23 that L&T Finance is keen to buy a stake in Yes Bank. The other two banks, DCB and Karnataka Bank, have been in the news as possible takeover targets.
Lastly, insurance companies are also betting on some companies in the energy space, such as Indraprashta Gas (IGL) and ONGC, whose earnings are susceptible to regulatory changes. IGL, which had been battling a case in the Supreme Court regarding the methodology of calculation of its margin, saw insurance companies more than double their stake in the company in three years to 8.8% at the end of March.
Apart from banks and select energy stocks, insurance companies have also increased their stake in capital goods and defence companies such as Bharat Heavy Electrical (BHEL), Pipavav Defence and Engineers India.
A head of research of a leading domestic brokerage said, “Insurance companies’ investment approach is very different from the sell-side analyst, primarily on the back of term of valuation period considered. Most sell-side analysts consider only one-year forward earnings to arrive at a fair value of a stock, while insurance companies usually consider earnings growth for two to three years,” he said.
“Insurance companies take into account management profile and the extent of negative surprises to earnings before making an investment decision. This is the main reason why insurance companies have been buying companies like BHEL, Engineers India in the last three years, companies on which many sell-side analysts have been bearish on.”
(Source: The Economic Times, May 6, 2014)
RBI ASKED TO VET THE WAY BANKS RAISE TIER-II FUNDS
NEW DELHI: The government has asked the Reserve Bank (RBI) to set up a committee to look into the insurance regulator’s concerns that some of the instruments issued by banks to raise tier-II capital were perpetual and illiquid.
The Insurance Regulatory & Development Authority (IRDA) has also said that some of these instruments are flouting its investment norms. The committee will look into issue of and subscription to tier-II instruments under the new Basel-III capitalisation guidelines, a finance ministry official said.
“The insurance regulator has raised concerns over certain instruments. We have asked RBI to take up those issues,” the official said, requesting anonymity. As per Basel-III norms, banks can cancel interest or dividends on instruments raised under tier-II capital or write off such investments in times of stress.
Life Insurance Corporation (LIC), the country’s biggest insurer, has invested around Rs 10,000 crore in Tier-II bonds of public sector banks, which are typically unsecured and cannot be converted into equity.
In February, the insurance regulator had allowed insurers to invest in debt capital instruments and redeemable noncumulative and cumulative preference shares. An IRDA official said there are also issues with the credit ratings of some instruments that do not meet investment guidelines prescribed for insurance companies. “In view of the substantial need for raising additional capital by banks to meet the new regulatory norms, we had allowed certain instruments but it was observed that some of them are flouting our investment norms,” the IRDA official added.
According to RBI’s estimate, public and private sector banks will together need an additional capital of Rs 5 lakh crore to comply with the Basel-III regulations. Of this, equity capital requirement will be of Rs 1.75 lakh crore and non-equity capital of Rs 3.25 lakh crore. “Both the regulators will be able to work out a mechanism,” said the finance ministry official quoted earlier.
The government is hoping to channelise pension and insurance funds in banks to meet the huge capital requirements. Additionally, IRDA is also examining a proposal to raise insurance companies’ exposure limit to the banking sector to 30% from 25%. Financial services secretary GS Sandhu had earlier told ET that the government cannot bank on LIC alone to capitalise banks and that it will review how much further exposure the insurer can have in banks.
The government has allocated just Rs 11,200 crore towards bank capitalisation this fiscal, which is substantially less than the amount infused in the last few years.
(Source: The Economic Times, May 6, 2014)
INDIA TO TAP INTO UN & WORLD BANK NETWORK TO RECOVER BLACK MONEY
NEW DELHI: Recognising the challenges in recovering unaccounted wealth stashed abroad, India has now sought the help of a multilateral framework set up by the World Bank and UN that offers systematic assistance in recovering laundered assets.
The Enforcement Directorate (ED) has tied up with the Stolen Asset Recovery Initiative (Star) of the World Bank and the UN office on Drugs and Crime, the only global initiative in international asset recovery. According to some reports, India loses $600 million every year in tax revenue on account of tax evaded money coming back to India in the form of foreign direct investment, in what is called ’round tripping.’
Rajan Katoch, director of enforcement, told FE that the ED was working on a formal framework for co-operation with all the countries for attachment of laundered assets and that the WB and the UNODC were co-ordinating the efforts.
The Star initiative co-operates with all the OECD, G8 and G20 nations in recovering laundered assets.
While countries pursuing tax evaded money stashed abroad have to take up the matter individually with the country where those assets are located, Star would act like a facilitator between the parties.
(Source: The Financial Express, May 6, 2014)
SEBI MAY EASE PROMOTER HOLDING NORM TO MAKE DELISTING SIMPLER
MUMBAI: The Securities and Exchange Board of India (Sebi) plans to ease a clause dealing with the minimum number of shares to be acquired by a promoter to delist a company from the bourses, say sources.
As per Sebi guidelines brought out in June 2009, promoter holding in a company has to cross 90% or promoters have to buy out more than 50% of the balance public shareholding in the company through the reverse book-building route. The promoter shareholding has to reach the higher of these two requirements if a company is to delist.
The regulator is considering doing away with the second requirement to simplify the delisting process. As per current norms, a company with promoter holding of 89% has to raise its shareholding by 5.5% to 94.5% to fulfil both criteria. If the second criteria is done away with, the company will have to raise promoter holding by just about 1%.
“Fulfilling both the conditions is a major impediment in the delisting process and promoters sometimes have to pay through their nose to get the required number of shares,” said a merchant banker, on condition of anonymity.
While several small firms have managed to delist from the bourses in the last two years, the bigger firms have been struggling. Most of the bigger MNC players who wanted to delist their shares in 2012, for instance, did a volte face and opted for stake sales instead.
This included firms such as Oracle Financial Services Software, Timken India and Novartis India. Delisting attempts by MNCs such as Saint-Gobain Sekurit India and Ricoh India were unsuccessful.
Delisting is not an easy process as the company must get approval of 2/3rd of the shareholders through a postal ballet, establish an acceptable price through reverse book-building and increase the holding to the required threshold. Given the uncertainty involved in the delisting process, public shareholders typically expect a steep exit price from the company.
Experts said a delisting process becomes even more difficult in the event of concentrated shareholding or if a large number of shareholders holding few shares each are uninterested in selling them to the company.
In a recent research report, proxy advisory firm IiAS had said that the delisting process had to be revisited as it was time consuming and marred by high cost and lack of funds. The firm had suggested providing multiple delisting avenues, wherein MNCs could issue Indian Depository Receipts of the parent company to buy out the stake of public shareholders of the listed Indian entity instead of using cash.
IiAS also recommended that Sebi may consider permitting promoters to use the company’s funds and buy back the stake of the minority shareholders to delist instead of mandating promoters to pool in their own funds. The advisory firm advocated a one-track approval from shareholders where the price being offered was clearly stated and shareholders vote on both the price and the offer at the same meeting.
(Source: The Financial Express, May 6, 2014)