Sumitomo likely to acquire 44% stake in Excel Crop Care

Japanese conglomerate Sumitomo is at an advanced stage of negotiations to acquire a substantial equity stake in Excel Crop CareBSE -0.87 % , a Mumbai-headquartered listed company. The proposed deal could pave the way for the Japanese group to own about 44% shares of the pesticides and agrochemicals company for a total consideration ofRs 1,200-1,300 crore.

Sumitomo plans to buy out stake of Excel promoters — the Shroff family — holding 24.7% equity as well as two financial investors together owning close to 19% of the shares. ET’s email to Dipesh Shroff, managing director of Excel Crop Care, and Sumitomo Chemical went unanswered.

There have been several rounds of talks between officials of Sumitomo Chemical and the Excel management, and indications are that the deal may be signed in June. Nufarm, the Australian crop protection and specialist seeds company, owns more than 14% and is likely to retain its strategic stake in Excel Crop Care.

According to a report by Avendus Capital, global players are looking at India to increase their market share, add to their product portfolio , and strengthen their supply base in specialty and agrochemicals. “The Indian agrochemicals market is expected to grow rapidly (about 12% CAGR over 2014-19) with increase in farmer awareness, improvement in rural income and increase in pressure for improving productivity,” said Preet Mohan Singh, executive director, Avendus Capital.

The Shroffs are also the promoters of Excel Industries, a specialty chemicals company, and co-promoters of Aimco Pesticides in which they control a little over 25%. Before entering into any agreement with Sumitomo, the Shroffs are expected to conclude the inter se transfer of their holding to the other promoter family of Aimco. Excel Crop Care has 1.13% equity interest in Excel Industries.

Besides Shroffs, the other two shareholders of Excel Crop Care who may sell their shares to Sumitomo are Ratnabali Capital Markets (holding 14.99%) and Ratnabali Investments (3.95%). Among the institutional shareholders of Excel Crop Care are Life Insurance Corporation (6.58%) and DSP Blackrock (1.92%).

Excel Crop Care’s consolidated net profit for the quarter ended March 31, 2016 was Rs 7.6 crore as against Rs 1.7 crore in the year ago period, on total income of Rs 188.6 crore (Rs 205.6 crore). The Excel Crop Care stock has been trading at around Rs 1,109, against 52-week high and low of Rs 1,247 and Rs 750, respectively.

M&A activities in sectors like agro and specialty chemicals is expected to pick up, said Avendus, adding that the stride towards food security will also increase the significance of agrochemicals. An estimated 85% of India’s crop loss (worth close to $20 billion) is caused by pest infestation, disease and weeds and is prevented by the use of agrochemicals.

India exports agrochemicals to countries like the us , France, the Netherlands, Belgium, Germany, Brazil, Colombia, China, Vietnam and Indonesia.

Source: http://economictimes.indiatimes.com/articleshow/52392474.cms

Commercial realty witnesses rising interest from private equity funds

The commercial real estate sector is witnessing increased interest from private equity funds, with several large institutions focusing on completed and leased commercial assets for investment.

In 2015, private equity real estate firms deployed more than $5 billion in Indian real estate companies and projects — the highest since the financial crisis of 2008 — through 90 deals, according to research from Venture Intelligence. Large investors and established developers also created several joint venture platforms in the past year, it said in a report.

Of the investment made, commercial projects accounted for 10%, it said. “Most of the private equity funds that India is receiving is from sovereign funds and pension funds,” said Sanjay Dutt, managing director, India, at realty consultants Cushman & Wakefield. “These funds prefer to invest in safer assets and have the potential to make long-term investments.” Completed leased commercial assets are seen as the best bet for these investors.

 

They have also been actively getting into tie-ups with builders to make investments in India. In one of such arrangements, Tata Group’s real estate and infrastructure development arm, Tata Realty & Infrastructure, partnered with Standard Chartered Private Equity to create a Rs 3,000 crore investment platform. While Goldman Sachs and Bengaluru-based property developer Nitesh Estates formed a $250 million fund to invest in income producing commercial real estate assets in India, APG and Xander also launched a $300 million India office venture.

Similarly, US private equity giant Blackstone formed a special purpose vehicle with Embassy Property Developers, while sovereign wealth fund Qatar Investment Authorities agreed to back real estate firm RMZ to buy commercial assets.

“The world economy is unstable and risk appetite among investors is going down. Funds want to invest in income-generating assets as they are looking for safe and long-term investment,” said Raj Menda, corporate chairman at RMZ. The company is further looking to raise $600 million to invest in income-generating assets.

From the REIT perspective, private equity funds that are planning to launch REITs are seeking to build a portfolio of commercial assets.

“Commercial platform is extremely important as office assets cannot survive merely on leverage (borrowed) money. Equity money is extremely important to increase quality of commercial assets and long-term success of real estate investment trust,” said Rajeev Bairathi, executive director of capital transactions group at Knight Frank India.

Meanwhile, better market outlook is prompting Milestone Capital to look at introducing a domestic commercial fund this year to deploy rent-earning pre-leased assets, of around Rs 1,000 crore.

“Assets are available at attractive valuations. With interest rates in a low range, higher capital appreciation is possible. We are already evaluating a few deals for investment,” said Rubi Arya, executive vice chairman of Milestone Capital Advisors.Milestone Capital is working also on exits worth Rs 700 crore, including Rs 500 crore from commercial assets in the next one year in the backdrop of a recovering office property market.

Source: http://economictimes.indiatimes.com/articleshow/52368876.cms

India, Mauritius to amend tax treaty

India will levy capital gains tax on investments routed through Mauritius from April 1 next year, bringing down the curtains on a contentious three decade-old rule that allowed companies to bring in billions of dollars by paying negligible taxes.

The taxes on capital gains will apply to investments made from April 1, 2017 and will be imposed at 50% or half of the domestic rate until March 31, 2019, and at the full rate thereafter.

How do people use tax havens to avoid paying taxes?

Through “round tripping” or “treaty shopping”.

How does round tripping work?

Round tripping refers to routing of investments by a resident of one country through another country back to his own country.

You get money out of India and transmit it to a tax haven with whom India has a bilateral tax avoidance treaty such as the double-taxation avoidance agreement (DTAA). In the tax haven, this money is treated as capital of a registered corporate entity. You now invest this money back in an Indian company as foreign direct investment (FDI) by buying stakes or invest it in Indian equity markets.

How does this help in avoiding taxes?

The entire purpose of this exercise is to window-dress as foreign capital your original money that you had taken out from India.

In the entire process, you end up paying zero or negligible taxes. In India, you can claim tax exemption citing the DTAA arguing that you have paid taxes in the source country. In the source country, taxes are negligible since it is a tax haven.

What is DTAA?

These are bilateral treaties signed between governments to prevent companies from being taxed twice over.

So, what was the problem with Mauritius?

Mauritius, and other tax havens, has almost negligible taxes. This was encouraging companies to route their investments in India through “shell” companies (those that exist only on paper) in Mauritius and avoid paying taxes.

How big was the problem?

At $94 billion, Mauritius has been the largest FDI source for India, accounting for 34% of total FDI in India between 2000 and 2015.

What are the changes that will plug this gap?

The changed DTAA will make it mandatory to pay capital gains tax on sale of shares in India by companies registered in Mauritius

When will the new rules kick-in?

Share sales in Indian companies by Mauritius-registered firms will be taxed at half of the applicable rate between April 1, 2017 and March 31, 2019.

If the capital gains tax in India is 10% currently, Mauritius-registered companies will be taxed at 5% during the first two years beginning April 2017. Full capital gains tax will apply from April 1, 2019.

What about previous investments?

The new rules will not apply only to investments made before April 1, 2017, meaning share sale of investments made before this date will be exempt from capital gains tax.

Which companies will benefit from the reduced tax rates during the first two years?

The benefit of 50% reduction in tax rate during the transition period from April 1, 2017 to March 31, 2019 shall be subject to a limitation of benefit (LOB) Article.

A Mauritius-registered company (including a shell or conduit company) will not be entitled to lower tax rate, if it doesn’t spend at least Rs 27 lakh in Mauritius in the previous 12 months. This is called ‘purpose and bonafide business test’.

How will impact investors?

Many foreign investors will have to redraw their strategies. The incentive to route investments through Mauritius will cease to exist once the new rule kicks-in. This could raise their tax outgo.

What about markets?

It could hurt short-term foreign investor inflows into India, particularly from companies whose investment strategies are guided by minimising taxes. This could pull down markets initially.

Are these rules related to the general anti-avoidance rules (GAAR)?

GAAR are aimed at curbing tax avoidance and aim to give tax authorities the right to scrutinise transactions that they feel have been done to avoid taxes.

Under GAAR corporations may be forced to restructure salaries of employees if taxmen conclude that these were structured only to avoid taxes. Similarly, if a foreign investment transaction from Mauritius has taken place with an intent to exploit DTAA, it will come under GAAR.

Implementation of GAAR will take place from April, 2017.

Source: http://www.hindustantimes.com/business/india-mauritius-tax-treaty-all-you-need-to-know/story-QSOlvKyt6rrN7E00S7wp9K.html

IRDAI gives approval to 23 cross-border reinsurers

The Insurance Regulatory and Development Authority of India (IRDAI) has granted special approval to 23 Cross Border Reinsurers (CBR) for the year 2016-17.

This will allow Indian insurers to make reinsurance placements with a large number of reinsurers. Cross-border reinsurers are those who do not have a physical presence in India but carry on reinsurance business with Indian insurance companies.

According to PJ Joseph, Member (Non-Life), IRDAI, approvals were given on the basis of submissions made by CBRs and the recommendations made by the insurers and GIC Re in line with the guidelines issued by the authority last month. The approved CBRs include Ingosstrakh Joint Stock Insurance Company (Russia), Asian Reinsurance Corporation (Thailand), Trust Re (Bahrain), United Overseas Insurance Company (Singapore), Equator Reinsurances Ltd (Bermuda), East Africa Reinsurance Company Ltd (Nairobi), Vietnam National Reinsurance Corporation (Vietnam), CICA Re (Kenya), Arab Insurance Group (Labuan) and Union Insurance Company (UAE), among others.

Reinsurance assumes significance as it is important to maintain solvency of the insurer and to ensure that the claims/other clauses are honoured as and when they arise.

Past approvals

In the year 2015-16, the regulator had recognised 244 reinsurers and 90 Lloyds Syndicates. In 2014-15, 238 reinsurers and 87 Lloyds Syndicates were recognised. It is likely that the authority may give more approvals in future.

The onus of placing reinsurance business with registered CBRs is on the Indian insurers or reinsurers and they will have to ensure that the cross-border reinsurer meets the requirements as specified by the regulator. Within the country, the General Insurance Corporation of India is designated as the ‘Indian Reinsurer’ which entitles it to receive obligatory cessions of 5 per cent from all the direct non-life insurers.

Source: http://www.thehindubusinessline.com/money-and-banking/irdai-gives-approval-to-23-crossborder-reinsurers/article8581417.ece

Silicon Valley venture capitalists raise more money, give less away

Venture capitalists are raising money at the fastest rate in a decade, raking in about $13 billion in the first quarter of 2016.

But much of that cash won’t flow into new startups anytime soon. Rather, venture firms are bracing for a downturn and boosting reserves to keep companies they have already backed from going bust, said venture capitalists and limited partners.

“They are squirrels trying to pack their cheeks full of nuts,” said Ben Narasin, a partner at Canvas Ventures. “Everyone has been waiting for winter to start for a long time.”

The paradox of rising venture fundraising and falling venture investing is the latest sign of a tectonic shift in the tech startup realm. The extraordinary growth of so-called “unicorn” companies such as Uber and Airbnb – now valued at tens of billions of dollars, based on venture investments – has left many high-value startups with no “exit strategy,” in Silicon Valley parlance.

Burned by previous busts, Wall Street has lost its appetite for initial public offerings from money-losing companies. No venture-backed tech startup has gone public this year, and the few that did last year – including enterprise storage company Pure Storage, and cloud storage and file-sharing firm Box – have seen their share prices steadily sink. High valuations have also scared off potential acquirers.

Scale Venture Partners exemplifies the cautious approach taking hold in the VC industry. It chose to do one fewer investment from its last fundraising round and to increase its reserves by more than 10 percent.

“We will have to support our companies longer,” said Rory O’Driscoll, a partner at the firm, which raised a $335 million fund in January.

Accel Partners has reduced its pace of new investments since the middle of last year, while increasing its follow-on funding for portfolio companies, according to an analysis by venture capital database CB Insights.

The venture firm raised $2 billion in March, but it won’t tap into the new fund until late fall, said managing director Richard Wong.

Total U.S. venture investment fell to $12.1 billion in the first quarter – down 30 percent from the most recent peak of $17.3 billion in the second quarter of last year.

Chris Douvos, managing director of Venture Investment Associates, an investor in early-stage venture funds, says the funds he backs are increasing their reserves by 10 percent to 25 percent over what they had in previous funds.

The $13 billion raised by VCs is the third-largest quarter for fundraising since the dot-com peak in 2000, according to Thomson Reuters data. There is now $382 billion of dry powder – cash available to spend – held by both venture capital and private equity firms that invest in technology companies, according to investment banking and consulting firm Bulger Partners.

“It’s fast, and it’s a lot of dollars this year,” said Beezer Clarkson, managing director at Sapphire Ventures, which invests in early-stage venture funds.

Many VCs believe that more reserves will be needed for the big cash infusions that startups often need after establishing themselves but before turning a profit.

VCs are also seeing mutual funds retreat from late-stage startup financing deals. Mutual funds led just eight deals in the fourth quarter of last year, down from 26 in the second quarter, according to the research firm CB Insights.

The confluence of trends means that money-losing startups likely will struggle more for venture capital. That, in turn, could lead to more companies failing or cutting staff, cooling the red-hot market for tech talent. It could also strengthen the hand of dominant tech companies, who may face fewer disruptive rivals and attract employees tired of volatile startup life, according to tech recruiters.

CASH BURN

Until recently, many venture capitalists have had a land-grab mentality, even with more obscure startups such as Magic Leap – an augmented reality company that raised about $800 million in February – or Social Finance, a startup in the highly scrutinized fintech sector that raised $1 billion in September.

Investors competed fiercely to finance hot companies they believed could be the next Google or Facebook. Higher prices for smaller stakes drove up valuations in companies, including many who burned cash quickly in a quest for growth. Many venture capitalists say they overpaid by 20 to 30 percent, and now have to keep those companies afloat.

Over the past six months, however, nervous whispers about a tech bubble have sparked rising skepticism of venture-dependent startups with stratospheric price tags.

The same venture capitalists who jousted in bidding wars for the next great deal just six months ago are now fending off appeals.

Canvas Ventures, Norwest Venture Partners and Accel Partners – among Silicon Valley’s more prominent firms – say they are getting more calls from peers asking them to join a late-stage round for companies running out of cash.

“We get a lot more ‘special opportunities, just for you,'” said Wong, of Accel Partners. “We get the phone calls, along with everyone else.”

PAPER GAINS

For now, venture capitalists have little problem raising money, despite their new hesitance to spend it and the inability of many startups to turn profits or go public.

That’s in part because many VC firms are currently showing huge paper gains in the value of their portfolios. Many firms are raising as much as possible now, in case valuations drop in so-called “down rounds,” when later stage investors pay less for company stakes than earlier ones, and the returns on their investments plummet, according to limited partners.

Signs of falling returns are already emerging. Cambridge Associates, an investment advisor, measured a -0.4 percent return on the U.S. Venture Capital Index for the third quarter of last year, the first down quarter since 2011.

First Round Capital, an early-stage venture firm, warned its limited partners in a letter a year ago that the seed-stage venture capital deals will see much lower returns in the next several years.

But that warning didn’t scare Douvos, an investor in First Round, which was an early backer of Uber and made a bundle on the IPOs of Square and OnDeck Capital.

“Fund performance will soften,” Douvos said. But, he said, “The returns from First Round are so good that nothing else really matters.”

Read Source: http://www.reuters.com/article/us-venture-fundraising-idUSKCN0Y41DQ

 

IMF: Global corruption costs trillions in bribes, lost growth

Public sector corruption siphons $1.5 trillion to $2 trillion annually from the global economy in bribes and costs far more in stunted economic growth, lost tax revenues and sustained poverty, the International Monetary Fund said on Wednesday.

In a new research paper, the IMF said that tackling corruption is critical for the achievement of macroeconomic stability, one of the institution´s core mandates.

The Fund argues that strategies to fight corruption require transparency, a clear legal framework, a credible threat of prosecution and a strong drive to deregulate economies.

“While the direct economic costs of corruption are well known, the indirect costs may be even more substantial and debilitating,” IMF Managing Director Christine Lagarde wrote in an essay accompanying the paper. “Corruption also has a broader corrosive impact on society.

It undermines trust in government and erodes the ethical standards of private citizens,” Lagarde added.

The paper, titled “Corruption: Costs and Mitigating Strategies,” follows Lagarde´s warning to Ukraine in February that the IMF would halt its $17.5-billion bailout for the strife-torn eastern European country unless it takes stronger action to fight corruption, including new governance reforms.

Lagarde is due to participate in a British government-sponsored anti-corruption summit in London on Thursday that will include U.S. Secretary of State John Kerry and other senior officials including the presidents of Nigeria and Afghanistan.

Extrapolating from 2005 World Bank research, the paper estimated that around 2 percent of global gross domestic product is now paid in bribes annually.

But it said corruption´s indirect costs are substantially higher, reducing government revenues by encouraging tax evasion and reducing incentives to pay taxes, leaving less money available for public investments in infrastructure, health care and education.

Source: http://www.thenews.com.pk/latest/119186-IMF-Global-corruption-costs-trillions-in-bribes-lost-growth

Facebook revenue smashes expectations, rises more than 50 per cent as mobile ad sales surge

Riding on advertisement growth, social media giant Facebook on Wednesday reported a stellar $1.5 billion first-quarter profit or 52 cents per share in 2016

Facebook Inc’s quarterly revenue rose more than 50 per cent, handily beating Wall Street expectations as its wildly popular mobile app and a push into live video lured new advertisers and encouraged existing ones to boost spending.

The company’s shares rose 9.5 per cent in after-hours trading on Wednesday to $118.39, setting it on track to open at a new high on Thursday, at nearly triple its initial public offering four years ago.

Facebook also announced it will create a new class of non-voting shares in a move aimed at letting Chief Executive Officer Mark Zuckerberg give away his wealth without relinquishing control of the social media juggernaut he founded.

The company plans to create a new class of non-voting shares, which would be given as a dividend to existing shareholders. That would allow Zuckerberg, who wants to give away 99 per cent of his wealth, to sell non-voting stock to fund philanthropy and keep the voting stock that assures his control.

Alphabet Inc passed a similar proposal in 2014 that ensured its founders’ control by creating new non-voting shares.

Some 1.65 billion people used Facebook monthly as of March 31, up from 1.44 billion a year earlier. Zuckerberg said users were spending more than 50 minutes per day on Facebook, Instagram and Messenger, a huge amount of time given the millions of apps available to users.

Advertisers are shifting money from television to web and mobile platforms, and Facebook is one of the biggest beneficiaries. It faces fierce competition in the mobile video market, where rivals Snapchat and YouTube also garner billions of video views every day.

Facebook recently expanded its live video product, rolling out several new features and making it more prominent on the app to encourage users to create videos and share them. The quarterly results showed success attracting advertisers with the move, and the company was able to expand its operating profit margin to 55 per cent from 52 per cent a year earlier.

“The company consistently ‘warns’ about higher spending, but they consistently manage their spending to deliver earnings upside. They’re an impressive company, and they leave very little room for criticism,” said Wedbush Securities analyst Michael Pachter, who called the operating margin a good surprise.

Facebook did not offer details on sales of its Oculus Rift virtual reality headset, but emphasized that it was early days and said that sales would not significantly impact 2016 revenue.

The results come after disappointments for investors from several major Silicon Valley firms.

“After Intel and IBM last week, and then Twitter and Apple yesterday, this is by far the best number I’ve seen in technology,” said Daniel Morgan, senior portfolio manager at Synovus Trust Company which owns about $40 million worth of Facebook shares, commenting specifically about Facebook ad revenue.

Facebook has not begun advertising on some of its most popular apps. “They haven’t yet turned on the monetization spigot for Messenger or WhatsApp, so there should be significant headroom still,” said Jan Dawson, chief analyst at Jackdaw Research.

The company’s net income attributable to common shareholders nearly tripled to $1.51 billion, or 52 cents per share, in the first quarter from $509 million, or 18 cents per share, a year earlier.

Excluding items, the company earned 77 cents per share, beating Wall Street’s 62-cent consensus.

Total revenue rose to $5.38 billion from $3.54 billion, with ad revenue increasing 56.8 per cent to $5.20 billion. Mobile ad revenue accounted for about 82 per cent of total ad revenue, compared with about 73 per cent a year earlier.

Analysts on average had expected revenue of $5.26 billion.
If the stock proposal is approved – and Zuckerberg has a majority of voting stock – the company will effectively carry out a 3-for-1 stock split, issuing two shares of non-voting Class C capital stock as a one-time stock dividend for each share of Class A and Class B common stock.

Zuckerberg and his wife, Priscilla Chan, announced last year that they would give away 99 per cent of their Facebook shares to fund charitable endeavors.

Investors said they were not concerned that Zuckerberg would have increasing control, pointing to the company’s consistent ability to grow and exceed expectations.

“I honestly don’t think anyone cares if he has more power, since he’s done everything right since they went public,” said Pachter.

Source: http://economictimes.indiatimes.com/articleshow/52020175.cms