Daily Financial News Analysis – 15th Feb’20

Table of Contents

SC on Telecos

Supreme Court came down heavily on both telecom companies and the telecom department.
REASON: non-payment of adjusted gross revenue (AGR) dues of ₹1.47 lakh crore
A 3 judge bench headed by Justice Arun Mishra issued show cause notices to the managing directors and directors of the errant companies asking why contempt proceedings should not be initiated against them.
It also drew contempt proceedings against a telecom department official who had ‘passed an order’ stating no coercive action should be taken against the telcos for not sticking to the Supreme Court’s stipulated January 23 payment deadline.
The apex court further said the managing directors of the telecom companies would need to appear in person before the bench at the next hearing on March 17 if the dues were not paid.
A few hours after the order, Bharti Airtel wrote to DoT, saying it would pay up ₹10,000 crore by February 20, and the balance amount — as per their self-assessment — by March 17.
A big question mark hangs over the future of cash-strapped Vodafone Idea, which owes about ₹53,000 crore, according to official estimates.
So far the two promoters of the company — Vodafone UK and the Aditya Birla Group — have said they will not infuse any additional funding.

Banks Fear Surge in Bad Loans

Bankers fear a possible collapse of Vodafone Idea will increase bad loans and spark a rerun of the crisis that gripped the banking sector a few years ago.
Bank stocks slumped on Friday after the Supreme Court refused to give relief to telecom companies on adjusted gross revenues (AGR) dues.
Putting at risk the nearly ₹30,000 crore loans to Vodafone Idea, which has repeatedly been saying that its survival will be under threat if the government does not give any relief on payment of past dues.

Harley Motorcycles

India has proposed a new tariff classification for motorcycles with cylinder capacity exceeding 1,600 cc.
Imports of such motorcycles will be taxed in single digits.
The plan is part of ongoing trade talks with the US.
India had previously reduced the duty on completely built units (CBUs) of motorcycles of all engine capacities to 50% from 100%.
India currently classifies motorcycles as those with engine capacities of 75 cc, 250 cc, 500 cc and 800 cc or above.
Every traded product is categorised under an HSN code (harmonised system of nomenclature) — the global systematic classification of goods.
In the April-December period, India imported $20.63 million of motorcycles with cylinder capacity above 800 cc.
Trump, who is scheduled to visit India on February 24-25, had last year termed the 50% tariffs on such bikes, even after they were slashed from 100%, as “unacceptable”.
Separately, India has also sought a reduction in the H-1B visa fee as part of ongoing trade negotiations with the US.
Washington has proposed doubling the cost of such visas to $3,000-4,000.
Officials said India has pushed for a reduction in this cost.
India is keen to get market access for its mangoes and grapes.
India has also ruled out any tariff cuts for American milk.

Travel Ban Covid-19 Impact

Indian traders like Doshi who buy Chinese goods for sale in India have been laid low by the Covid-19 outbreak as transport links have been cut.

Brijesh Doshi, a trader based in Mumbai who deals in electronic false ceiling lights, was supposed to fly to Hong Kong this week on a purchase trip. He buys products manufactured in China in bulk and distributes them to smaller retailers in India.
“Every quarter I fly to Hong Kong, where I make some payments to the sellers and also select new products that we will import,” said Doshi, who couldn’t go because of the travel ban on account of Covid-19.
His current stock will last until the end of March and it doesn’t include the newest products, which tend to be the most profitable.

This has also meant that the critical hawala payment route has stopped functioning, said people with knowledge of the matter.
Goods that come in from China include commodities such as chemicals and retail items like toys and electronic goods.
Under-invoicing is rampant, with just 10-20% of the actual price being declared.
“The sellers are now demanding premiums on that. This, combined with the fact that we are unable to make payments due to almost a shutdown in informal channels, means we too will have to shut our factories within the next few weeks.”
Hawala channels are dependent on the movement of people carrying currency.
With flights cancelled and other modes of transport to China and Hong Kong curbed, hawala payments have got stuck, said people with knowledge of the matter.
Bilateral trade between China and India is pegged at around $90 billion with a trade deficit of about $60 billion in China’s favour.
Actual trade, said experts, could be even more skewed in China’s favour.
India exports only 5% of its total export basket to China.

Insolvency Proceedings Recovery

Successful resolutions of corporate insolvency proceedings till the end of 2019 are set to result in recoveries of ₹1.52 lakh crore for lenders, averaging 43.1% of their admitted claims of ₹3.52 lakh crore, according to data released by the Insolvency and Bankruptcy Board of India (IBBI).
Resolutions in the quarter through December 2019, however, yielded only around 12.2%, or about ₹2,879 crore, of the admitted claims of ₹23,668 crore.
In the preceding quarter, lenders recovered around 34.4% of their total claims of ₹78,592 crore.
“Trends suggest that there are lower recoveries in smaller cases, where there are not many takers for stranded business assets. With many of the larger cases beings resolved or near resolution, we are likely to see lower average recoveries for lenders going forward,” said an expert, who wished to remain anonymous.
The Reserve Bank of India had initially referred 12 large non-performing accounts with outstanding claims of ₹3.45 lakh crore to be resolved under the Insolvency and Bankruptcy Code.
Seven of these cases have ended with the approval of resolution plans, while in two the bankruptcy court has ordered liquidation.
Three other cases are currently undergoing the insolvency resolution process.
A total of 190 corporate insolvency proceedings since the IBC came into force have ended with successful resolution plans till December 31, 2019.
However, in 57.7% of the proceedings, or 780 cases, the court has ordered liquidation of the corporate debtors’ assets.
The IBBI newsletter noted that about 72.5% of the cases that ended with liquidation orders were earlier under the Board of Industrial and Financial Reconstruction regime.
“The economic value in most of these CDs (corporate debtors) had already eroded before they were admitted into CIRP (corporate insolvency resolution process,” the IBBI release said.
Separately, 579 voluntary liquidation proceedings have been initiated by corporate debtors till the end of 2019.
The most common reason cited by these companies for seeking liquidation was that they were “not carrying business operations”, while the next was that the businesses were not commercially viable.

CCI Investigation into Amazon, Flipkart

The Karnataka High Court on Friday stayed the Competition Commission of India’s (CCI) investigation into alleged anti-competitive activities of ecommerce firms Amazon and Flipkart.
The interim order comes in as a relief to both firms that had come under the competition watchdog’s scrutiny for allegedly having exclusive tieups with brands, influencing prices, offering deep discounting and having preferred sellers.

Wholesale Inflation

India’s wholesale inflation accelerated to a nine-month high of 3.1% in January.
Driven by fuel and power, and manufactured products.
Wholesale price inflation was 2.59% in December.
The annual inflation, based on the monthly wholesale price index (WPI), was 2.76% in January 2019.
Inflation in fuel and power was 3.42% compared with a negative 1.46% in December 2019.