The week saw released of some macroeconomic data such as trade figures and WPI inflation, release of statistics on insolvency cases, major events on corporate front were grounding of Jet Airways, release of financial results by RIL and agreement for sale of stake by GVK.
With the end of a financial year, release of data on important economic indicators is eagerly awaited. The week saw release of two important data sets; international trade and WPI based inflation. While India’s merchandise exports recorded best growth in last seven years at over 9%, the performance was clouded due to equal increase in imports, largely a result of rise in oil prices. However, more worrying is the significant decline in services exports surplus which fell to $80 bn against an average of $110 bn over last seven years. (Please refer previous article for more on this).
WPI for FY19 has been reported at 4.3% against 3.0% in FY18 and highest since FY14 when it stood at 5.2%. WPI has been impacted badly due to sharp rise in prices of crude oil & its products which directly contributed almost 2 percentage point to WPI. Food prices continue to remain subdued rising by barley 0.4%. (More on WPI, in another article)
Insolvency and Bankruptcy Board of India (IBBI) released the report of status of insolvency cases till Dec’18. As per the report, out of nearly 1,500 cases admitted for resolution in last two years, only 79 cases have been resolved so far whereas over 300 cases have seen liquidation order. Low number of resolutions is a cause of concern and efforts are needed to make the process faster. In line with that, the Supreme Court ordered some months back that appeal against a resolution plan can be filed only after it has been approved by NCLT and during the resolution process. Equally worrying is that fact that 275 cases are running beyond legal time frame of 270 days. While liquidation looks very high, 75% of these cases were going through bankruptcy as per earlier law and there was no scope of revival of these companies. Liquidation order brings about a certainty in these cases and reduces time spent on litigation by all the parties. Even though figures project an unappealing picture of insolvency process, it is still early days and the process would go a long way in managing lender – borrower equation.
After months of intense efforts by all stakeholders to save the airline, Jet Airways is finally grounded. This comes about with the refusal of lenders to provide emergency funds, necessary to meet the operational needs. The chances of airline’s survival had brightened some weeks back with the change of ownership and lenders agreeing to infuse emergency funds to the tune of Rs 1,500 crore. While expression of interest (EOI) have been received for takeover of the company, binding bids have to be submitted by 30th April. With airline not being a ‘going concern’ anymore, possibility of revival recedes further. It would not be surprising if banks recover just about 20-30% of their outstanding dues of over Rs 8,500 crore if they do receive binding bids. However, it is still not very clear as to what forced lenders to renege on their promise, most likely, a result of classic dilemma of letting a business sink or putting ‘good money after bad money’. Bankers, especially PSBs also need to consider whether such decision would pass the scrutiny from agencies such as CBI, ED etc in case of a query. (Read more on Jet Airways crisis – https://www.indiaeconomyandbusiness.com/jet-airways-can-it-avoid-a-crash-landing/)
Result season for the quarter and year ended March’19 began late last week with declaration of result by IT majors, TCS and Infosys. This week marked the declaration of results by industry behemoth, Reliance Industries, which posted profits of close to Rs 40,000 crore for the year, increase of over 13%. Profit growth for the quarter was lower at 10% indicating some slowing of momentum. More importantly, annual turnover at Rs 6.2 lakh crore is almost 45% higher than last year. Other than the increase in crude oil prices, up nearly 22%, sharp increase of almost 90% in turnover of retail segment at Rs 1.3 lakh crore, contributed to this. (More on this, in another article)
In another interesting corporate move, GVK entered into an agreement with Sovereign Wealth Funds (SWF), Abu Dhabi Investment Authority (ADIA) and National Investment & Infrastructure Fund (NIIF), for sale of up to 49% stake in its airports business. Deal size is quite reasonable at Rs 5,750 crore giving the airports valuation of close to Rs 12,000 crore. The move is important since only last week, GVK had warded off the attempt by Adani Enterprises to purchase stake in the company from a foreign stakeholder. Difference between SWFs and Adani is that SWFs are passive investors not interested in managing operations whereas Adani would come in as an active investor seeking role in day-to-day management. From Corporate management perspective, it is interesting to note that GVK managed a ‘while knight’ so quickly even as Mindtree, another target for hostile bid by L&T could not manage to get one even after months of frenetic efforts.
(Image courtesy of ddpavumba at FreeDigitalPhotos.net)