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Indian markets are the best amongst the worst

Source:Wisdom Tree

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When did you know you were rich?

Buffett answers this question the way only he can.

Source:Brattle St.Capital

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BSE pushes for IPO green light

(Disclosure:I am market making in the shares of BSE)

The chief executive of the Bombay Stock Exchange has urged regulators to allow Asia’s oldest bourse to push ahead with long-delayed flotation plans, while also calling for higher foreign investment limits in India’s domestic exchanges.

The issue has become increasingly pressing in recent months following complaints from a number of international investors who had bought stakes in the two main Indian exchanges, only to find hopes of selling them via a listing dashed by regulatory delays.

In theory, the Securities and Exchange Board of India, the markets regulator, has backed the idea of floating the country’s two main exchanges — the BSE and the National Stock Exchange, its larger competitor — a move that would bring India into line with other global economies, where major bourses are listed.

But since the BSE applied for permission to float in 2013, its application has been stuck in limbo, forcing it to mothball plans to raise $1bn through an initial public offering.

“We still want to do it,” BSE chief executive Ashish Chauhan told the Financial Times. “As soon as we get that approval, we would be able to float within a few months.”

Exchanges are keen to tap international investors, who have flocked to India and helped fuel a robust stock market rally after the election last year of Narendra Modi as prime minister. That has propelled the country into the world’s top 10 biggest equity markets, with a current total market capitalisation of about $1.44tn.

Mr Chauhan said he continues to “nudge and push” regulators to support his flotation plan. “It is basically a fear, probably, of the unknown that exchanges are getting listed for the first time. So, rightfully, they want to think it over and create a solid framework so that public trust is maintained.”-from FT

 
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How Diageo and Mallya screwed USL shareholders

Below is the transcript of JN Gupta’s interview with Sonia Shenoy and Menaka Doshi on CNBC-TV18.

Menaka: The open offer price when the acquisition first happened, was Rs 1,440. You are saying that that price is in some ways is fiction because there were other benefits to Vijay Mallya that Diageo had promised or indirect benefits to Vijay Mallya that Diageo will now have to deliver on which ought to have been factored into the open offer price. The first one you allude to is a guarantee, a bank guarantee that Diageo gave to a Mallya entity called Watson. And Watson was going to use that money to relieve the lien on certain USL shares that it had owned so that it could sell those shares in turn to Diageo. That bank guarantee is about to be invoked you are saying?

A: Yes.

Menaka: Can you give us more details on why you think that is not priced into the open offer?

A: The whole objective of the takeover code that Sebi is has set is that it had to be fair, transparent and give a treatment to the shareholder at least the same, if not more that has been given.

Menaka: So, that is accepted. Why are you saying that the price does not reflect the bank guarantee?

A: Why we are saying this is because when those shares were bought by Diageo, they were earlier pledge to a lender under a facility to whatever it may be. Diageo agreed to extend a bank guarantee to release those shares and purchase those shares. So, what happens, when you issue a bank guarantee; you have a cost, which is a very nominal cost of the bank guarantee commission or foregoing on the interest. But the bigger issue in a bank guarantee is the contingent liability that may arise out of the invocation of the bank guarantee. As is the case, which Diageo has mentioned in annual report, that there is a likelihood that they will not be able to recover this cost from that. They will not be able to recover this money from Mallya.

Menaka: So, essentially, the bank guarantee that they had given to a Mallya entity is about to be invoked because that loan for which they had guaranteed, the Mallya entity has defaulted on that loan. It is a USD 135 million loan and Mallya has defaulted on the loan, so there is a good chance that this bank guarantee will be invoked and therefore this money will have to go from Diageo’s pockets. You are saying it should be accounted for as part of the acquisition price.

A: My point is this. I have been a banker myself. When you give a bank guarantee, you give bank guarantee for a purpose and especially in a bank guarantee which is given for the third party where you have no control, then there has to be very strong logic for that. So, first of all, Diageo and Mallya, they never disclose to the regulator or to the public at large, that there was a underlying transaction.

Menaka: But, they did disclose in the 2013 annual report that such a bank guarantee had been extended, right?

A: The open offer disclosure was made on November 10, 2012 and that time all these things were already decided by that party that this will be the procedure.

Menaka: But, how do you expect Diageo, the acquirer in 2012 to know that a bank guarantee that it was offering an affiliate entity of Vijay Mallya was ultimately going to get invoked in 2015 because Mallya was never going to pay that money?

A: I am not at all arguing it.

Menaka: So, how could they have factored it into the open offer price?

A: My point is this. First they should have disclosed it. Secondly look into the circumstances. A person does not mortgage or pledge his shares unless and until there is a financial difficulty. If you are selling those very shares which have got released from using my guarantee, why did you not pay the same money which you got it from me to release the bank guarantee also? Why it has to be double financing for the same very shares. It is like this that I am buying a house which has been mortgaged by the seller to a bank. First I give a guarantee to the bank to release the mortgage and pay the same money for the same house, so that means the person is having money also.

Menaka: So, you are saying Diageo paid twice for those shares technically?

A: Now, coming to when that guarantee has been invoked, it is proof that they are paying twice.

Menaka: But, in the disclosures Diageo does say that it is a complex process of the guarantee being invoked and therefore what the contingent liability or USL or Diageo’s books will be in that sense, so it is not necessary that the full amount of USD 130 million will be paid by Diageo.

A: You have brought a very interesting fact into this because if you see the full disclosure of Diageo, it is Mr Mallya who is disputing everything. He says that Diageo has promised certain financial benefits to me and Diageo has failed.

Menaka: So, that is your second point of contention?

A: Yes.

Menaka: That those certain financial benefits nobody knows what they were or what they are, have not been accounted for in the open offer price. These are all disclosures that are coming out in the open only now and indicate that there are indirect benefits to Mr Mallya which should have been priced into the open offer.

A: So, the whole deal was an integral thing. As things are unfolding now, it appears that Rs 1,440 was just the naked price that was paid. Attached to that was the bank guarantee issue. Attached to that was the financial benefits that were promised to Mr Mallya which Mr Mallya is saying that Diageo did not fulfill and that is why the fight. As far as I am concerned, I do not care what their fight is. But look at the shareholders who should have been told that these are the attached transactions related to the purchase.

-from Money Control

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Ambit’s Saurabh Mukerjea learns from the Commies

In the Soviet era communist regimes,there was a joke which went like this:

Don’t think.

If you think, don’t speak

If you think and speak,don’t write

If you think and speak and write,don’t sign

If you think and speak and write and sign,don’t be surprised

 

Nitin Mangal of Veritas was arrested for writing a negative report against India Bulls.Wall Street Journal has written a brilliant article on this.What I found most interesting in the article was Ambit’s Saurabh Mukerjea’s take:

Some of the issues highlighted in Veritas’s criticisms were “plainly obvious,” said Saurabh Mukherjea, head of institutional equities at the Mumbai-based Ambit Group, in an interview. “The problem is that Veritas went out with guns blazing,” which isn’t done in India, he said, because you could “end up in a police station late at night and never see the light of day.”

Instead of putting his controversial opinions in writing, Mr. Mukherjea said he generally tells his clients verbally “where the skeletons lie.”