Now, listed companies’ management to explain audit qualifications : SEBI

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Markets regulator Sebi today asked listed companies to disseminate cumulative impact of audit qualifications in a separate format along with the annual audited financial results to the stock exchanges.

Besides, the management of a company would be required to explain its view about audit qualifications.

The new framework would ensure that the impact of audit qualifications are clearly communicated by the companies concerned to their investors in a timely manner apart from streamlining the whole process.

Sebi decided to have the new system on audit qualifications after extensive discussions with its advisory committees, Institute of Chartered Accountants of India (ICAI), stock exchanges and industry bodies.

Now, listed entities will be required to disclose the cumulative impact of all audit qualifications on relevant financial items in a separate form called ‘Statement on Impact of Audit Qualifications’ instead of the present form.

Such disclosures will have to be made in a tabular form, along with annual audited financial results filed in compliance with the listing regulations.

The new mechanism will be applicable for all the annual audited standalone/consolidated financial results, submitted by the listed entities for the period ended March 31, 2016 and thereafter.

The listed entity will have to furnish a declaration in case there are no audit qualifications.

In case of audit reports with modified opinion, a statement showing impact of audit qualifications will be filed with the stock exchanges in a format specified by the regulator, Sebi said in a circular today.

Issuing a format for ‘Statement on Impact of Audit Qualifications’ for the financial year, Sebi said that companies will have to disclose net profit, networth, turnover, total expenditure, earning per share, total assets and liabilities.

Besides, the firms will have to make submission about details, types, frequency of audit qualification. The management will have the right to give its views on the audit qualification.

Also, the management of the listed entity will have explain its views on the audit qualifications.

“Where the impact of the audit qualification is not quantified by the auditor, the management shall make an estimate. In case the management is unable to make an estimate, it shall provide reasons for the same. In both the scenarios, the auditor shall review and give the comments,” Sebi noted.

Source: http://www.business-standard.com/article/pti-stories/now-listed-cos-management-to-explain-audit-qualifications-116052700918_1.html

Intangible MNC assets may be taxed in case of a global merger and acquisition

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A recent clarification by the government has created a stir among some multinationals which are concerned that their Indian entities might be taxed even in case of a global merger and acquisition with another global company.

More so, the worry is in case of multinationals that hold intangible assets in India, either through research and development centres, or are engaged in businesses where it is tough to value assets.

This is mainly because tax component, if at all, would be decided on valuation of the Indian entity, and whether valuation (Indian entity) accounts for more than half the holding entity outside India. This comes in the wake of the Central Board of Direct Taxes (CBDT) announcing rules for determining fair market value in case of indirect transfer of shares of an Indian entity. Rules specify a method for determination of “fair market value” of foreign target company shares and Indian company shares. In case of an indirect transfer of shares or transaction, if the value of Indian assets is more than 50% of the foreign target company, this could lead to taxation in India.

So if an US-headquartered company invests in India through a Mauritius company and at any point in time there’s a change in ownership, the tax could be applied. The tax would be triggered in India if the ownership of the Mauritius company is changed, and if more than 50% of the total assets of this company (Mauritius company) are in India.

“If a multinational has a presence in India through an intermediate holding vehicle in a third country, and if there is an M&A deal at the intermediate holding entity level, the Indian entity can attract taxation in India,” said Amit Singhania, Partner at Shardul Amarchand Mangaldas.

“While the 50% rule applies, valuing the Indian assets, particularly the right of management or control in an unlisted Indian company would be challenging,”  Singhania said.

Many multinationals are now rushing to their Indian tax consultants to find out which transactions could attract tax here. “Many multinationals that have a presence in India through Mauritius could face some tax in India even if there is an offshore M&A deal, especially where the seller is based in a country whose treaty does not exempt capital gains tax in India,” said Rajesh H Gandhi, partner, tax, Deloitte Haskins and Sells.

“However, more importantly, it could be challenging to identify and value some of the assets and determine the place where they are situated. This would be more relevant for assets like human resources, contractual rights and intangibles such as mobile applications, results of R&D or patents developed in India but registered elsewhere,” said Gandhi.

Industry trackers say that in case of an M&A at an international level, the shares of holding companies are transferred or merged, which is where the problem lies. Many experts also point out that information and documentation required to ascertain the valuation of Indian as well as an intermediary is not just complicated but tough to come by in many cases.

“If so, income tax would assume the Indian entity’s valuation is more than 50% of the holding entity,” said a consultant currently advising such a client. Experts point out that patents held by the Indian company, and some other assets too have to be valued. Not only valuing these intangible assets could have different views, in some cases, these patents or other intangible assets are developed in India but sit on the balance sheet of other group companies outside India.

Source: http://economictimes.indiatimes.com/articleshow/52474147.cms

Amazon sets the pace for e-commerce in India

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Seattle-based e-commerce giant Amazon should be happy that even before it turns three in India on June 5, the company has emerged a leader in this market. Before rivals can protest, we are not talking numbers yet. The American player has won the first round simply because it has successfully pushed competition to change the narrative and metrics of the online play.

Earlier this week, the almost nine-year-old poster boy of Indian ecommerce, Flipkart, announced in three separate interviews that customer satisfaction would be its mantra from now on. GMV or gross merchandise value of goods sold on the platform, till now the benchmark for success, will be kept aside, said Binny Bansal, who became CEO of Flipkart in January. Not too long ago, Snapdeal CEO Kunal Bahl had the same to say about shedding the GMV goalpost.

In the process, both Flipkart and Snapdeal have endorsed what the American e-commerce major has always maintained and indirectly acknowledged Amazon’s heavyweight presence in this market.

Here’s how the customer has always been the central point for Amazon. When asked about the next round of investment coming into India and whether the figure would be higher than the $2 billion announced in 2014, the company’s India head, Amit Agarwal, had said in December 2015: “All I can say is that we will not be held back for investments…. We don’t manage to a number but to the customer’s expectation.” Also, GMV was never a benchmark that this company referred to, unlike its rivals.

The focus on customer flows from the top. In September 2014, Amazon founder Jeff Bezos had told this newspaper, ”I stay heads down, focused. I encourage these guys (the India team) to not pay attention to a bunch of noise, and rather stay focused on the customer experience, figure out how to get products to customers faster with more reliability, earn trust with customers. The rest will take care of itself.”

In fact, the Bansals of Flipkart have known the napkin sketch of flywheel (with customer at the centre) drawn by Bezos some 17 years ago only too well: the two IITians had worked at Amazon in the US before starting their own venture in 2007.

As for numbers, estimates show that Amazon’s growth in India was 250 per cent in 2015 compared to the previous year. This year, the growth has been around 150 per cent. The number of active sellers on the platform is pegged at 85,000 and industry reports have shown that its website is top of the list in e-commerce. The company does not offer separate customer data for different geographies, but it has a total global user base of 300 million plus.

Picking and choosing
Comparisons with Flipkart and Snapdeal are tough. But in a cat and mouse chase, both Amazon and Flipkart or their investors have been dishing out data from time to time, citing analytics firms. In December, two sets of data came out. One was from Bezos in an email to customers. “Just two and a half years from our launch, Amazon.in has become the most visited e-commerce site in India,” Bezos wrote. He cited data analytics firm ComScore to say Amazon was leading with more than 30 million monthly unique visitors as of October 2015. Flipkart was at 27 million while Snapdeal was at 20 million. These numbers reflected unique visitors to e-commerce sites through desktop or laptop, rather than through mobile apps.

In the same month, Naspers, a South African Internet company, said Flipkart, along with Myntra, had over 50 million monthly active users on its smartphone app, three times larger than those on Snapdeal and Amazon during the September 2015 quarter. Naspers owns 17.4 per cent in Flipkart.

If number of visitors is what Amazon and Flipkart cite to claim leadership position, Snapdeal is peddling transaction numbers for the top slot. Snapdeal co-founder and COO Rohit Bansal said in February that the company has 1 million transacting users on the platform (Snapdeal, Freecharge and Shopo combined), and the number is higher than Amazon and Flipkart put together. Snapdeal aims to grow the transacting user number to 20 million by 2020.

There have been shipment comparisons too. Based on interaction with an unnamed logistic firm, a recent media report said that Amazon was the only e-commerce firm to have grown in shipment share from a year ago. While Amazon’s shipment share is said to have grown to 21-24 per cent from 19 per cent earlier, Flipkart’s share dropped from 43 per cent to 37 per cent and Snapdeal’s from 19 per cent to 14-15 per cent. These numbers could not be verified independently.

Number of sellers is another way of comparing the strength of a player. Against Amazon’s active 85,000, Flipkart has more than 100,000 and Snapdeal around 250,000.

The measure of success
Of late, companies have even started measuring the average delivery time as a benchmark in e-commerce. A recent study by PwC put Snapdeal ahead of Amazon and Flipkart in that measure.

Till recently, when the industry referred to GMV as the only solid currency, Flipkart was an undisputed leader at around $10 billion of total sales, followed by Snapdeal at $4 billion and Amazon at $2 billion as of 2015 estimates. One of the analysts that this newspaper spoke to projected the 2017 GMV at $12 billion for Flipkart, $9 billion for Snapdeal and $6.3 billion for Amazon. But according to him, the math could change as it was possible for Amazon to cross Snapdeal’s GMV while moving closer to Flipkart, depending on how the three played out the GMV-versus-profitability game.

A report published by Bank of America-Merrill Lynch in May 2015 placed Flipkart on top with 43 per cent market share, followed by Snapdeal at 30 per cent and Amazon at 18 per cent.

One year later, things have moved on. As reported by this paper, in the next 12 to 18 months, Amazon has the potential to be at the top of the pack, executives at three prominent international analyst firms say. If Flipkart and Snapdeal focus more on getting profits, shifting their attention from GMV, Amazon could race ahead faster, they said.

Stumbling blocks
But there are challenges on the way. The riders that came with the recent guidelines allowing 100 per cent FDI in online marketplace companies are among the hurdles. While liberalising e-commerce, the Department of Industrial Policy & Promotion has introduced conditions to ensure that platform owners do not turn sellers. Thus, sales cannot exceed 25 per cent for any vendor, marketplace players or their group companies cannot sell, guarantee and warranty must be the sole responsibilities of the sellers, and platform owners cannot influence pricing of products so that there’s a level playing field.

In fact, Amazon highlighted the regulatory risks in its India business, citing the latest e-commerce guidelines, in its filings to the US Securities & Exchange Commission.

Apart from the risk of sellers not being able to offer products at low prices on Amazon, as it may be interpreted as ”influencing pricing”, its worry is also Cloudtail, the most prominent vendor on the platform. Cloudtail, a joint venture of Amazon with Catamaran Ventures, promoted by Infosys founder NR Narayana Murthy, must reduce its sale to adhere with the latest Indian policy.

Even so, analysts believe that Amazon stands a better chance than the rest to be a long-term leader in e-commerce in India, primarily because of its war-chest. Amazon is a $100-billion conglomerate and it does have an open cheque book for India.

Source: http://www.business-standard.com/article/companies/amazon-sets-the-pace-for-e-commerce-in-india-116052601474_1.html

Tanzania plans to invest $1.9 billion each year in energy projects by 2025

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“Tanzania’s electricity sector faces another important challenge. As it is heavily dependent on hydropower, energy provision cannot be ascertained in times of drought,” Tanzania’s prime minister, Kassim Majaliwa, said.

Tanzania plans to invest $1.9 billion each year by 2025 in energy projects in a bid to end power shortages and boost industrial growth in East Africa’s second-biggest economy, its prime minister said.

Tanzania aims to boost power generation capacity to 10,000 megawatts from around 1,500MW at present, using natural gas and coal and reducing its dependence on hydro power sources.

“Tanzania’s electricity sector faces another important challenge. As it is heavily dependent on hydropower, energy provision cannot be ascertained in times of drought,” Tanzania’s prime minister, Kassim Majaliwa, said in a statement late on Tuesday.

“Severe and recurrent droughts in the past few years triggered a devastating power crisis as electricity generation in most of the hydropower stations have progressively been declining in recent years, occasionally resulting in long hours of power black outs.”

Majaliwa said the government wants to see more private capital investment in the energy sector.
“The projected power projects funding exceeds the existing government fiscal space,” he said. “To attract private capital, the government is improving institutional set up, legal and regulatory frameworks.”

Investors have long complained that lack of reliable power was one of the obstacles of doing business in Tanzania.

Tanzania said last week Japan’s Koyo Corporation plans to invest $1 billion in a gas-fired power plant near big offshore natural gas fields off the African country’s southern shore.
Source: http://economictimes.indiatimes.com/articleshow/52432817.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst

Investor sentiment improving, catalysts needed for fresh flows

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Expectations on structural reforms however remain low and “could be a positive catalyst if GST gets passed”, it said.

Investor sentiment towards the Indian economy is improving but markets are now looking at the passage of key reform bills like the Goods and Services Tax ( GST ) to act as “new catalysts”, says a Citigroup report.

Expectations on structural reforms however remain low and “could be a positive catalyst if GST gets passed”, it said.

According to the global financial services major, both equity and fixed income (FI) investors are portraying a constructive outlook for India, but are waiting for the next ‘catalyst’ for fresh inflows.

“Positioning on India still remains heavy and relative valuations do not appear to be cheap. This is possibly leading to a lack of substantial fresh inflows as the markets await new catalysts,” Citigroup said in a research note.

The BJP-led NDA government assumed office on May 26, 2014 with a thumping majority in Lok Sabha , but some key bills, including the one on GST, have been stuck in Rajya Sabha due to opposition from some other parties, mainly Congress.

As per the report, foreign equity as well as fixed income investors believe that the Indian economy is relatively attractive than other emerging market economies as it provides better macro stability. Some investors were also enthusiastic about the prospects of a cyclical recovery.

Though investors are on a cautious mode but with better monsoon forecasts, rural consumption is likely to revive. Moreover, urban consumption is expected to get a boost post the 7th Pay Commission implementation.

Source: http://economictimes.indiatimes.com/articleshow/52398282.cms