Private equity investors discover gold mine in e-commerce backend

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Private equity investors, who have stayed away from investing in online retail companies, have instead quietly reaped a windfall by backing logistics companies providing back-end support in the e-commerce rush.

In the latest deal, Peepul Capital recorded an over six-fold return on its investment in Ecom Express according to people aware of the transaction. Earlier this year Multiples Alternate Asset Management also made a partial exit from Delhivery, when the company raised fresh capital led by Tiger Global Management.

“These kinds of returns are only possible if there is multiple re-rating of both a company and a sector, which is not very common,” said Prakash Nene, MD at Multiples, who declined to comment on specifics of the deal.

The PE firm made a partial exit after Tiger Global led a round of about Rs 542 crore in the Delhi-based firm in May.

Peepul Capital is estimated to have earned Rs 500 crore on an initial investment of Rs 80 crore in Ecom Express. The firm made an exit when the logistics firm raised fresh capital in a round led by Warburg Pincus according to two people privy to the details.

The returns have been even higher for early seed and angel investors in these two companies, which handle delivery for top online retailers like Flipkart, Amazon and Snapdeal.

According to filings with the ministry of corporate affairs (MCA), seed fund Oliphans Capital bought shares in Ecom Express at around Rs 70 per share in 2013. The fund is estimated to have sold some of these shares to Warburg Pincus during the investment round in June this year. Regulatory filings indicate Warburg — through its unit Eaglebay Investments — paid Rs 2,276 per share of Ecom Express; this would imply that Oliphans netted a return of over 30 times.

“It’s only logical that investment is also about exits,” said Anish Jhaveri, MD at Oliphans, declining to comment on returns made by his firm. “When we invested around $1 million in the company (Ecom Express) there were just four people in front of us who had just quit Blue Dart.”

Ecom Express was founded in 2012 by TA Krishnan, Sanjeev Saxena, K Satyanarayana and Manju Dhawan who had launched the e-tailing business at Blue Dart. The Delhi-based company expects to deliver goods in over 10,000 pin codes covering more than 1,500 towns and cities, across the country in the next few years.

The increasing interest in these companies is driven by the rapid growth in logistic support for online retail. A recent report on the Indian internet sector by brokerage IIFL estimates that the order volume for e-commerce shipments will increase 13x by 2020, with overall volume of e-commerce orders amounting to 2,000 tonnes per day.

Investors are of the view that just as tower companies gained in the telecom boom, the online retail rush will benefit from the back-end support companies.
“There are a lot of enablers which are important from a shadow driving perspective broadly similar to what telecom towers are to telco industry and EPC companies are to infrastructure,” said Sreeni Vudayagiri, investment director at Peepul Capital, a PE firm with $700 million under management which primarily invests in mid-sized consumption and manufacturing businesses.

Source: http://timesofindia.indiatimes.com/tech/tech-news/Private-equity-investors-discover-gold-mine-in-e-commerce-backend/articleshow/49656651.cms

Global re-insurers gearing up to open branch offices in India

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Global reinsurance majors, such as Swiss Re, Munich Re and SCOR, have firmed up plans to apply for a composite licence to carry on reinsurance business through a branch office in India.

Last week, the Insurance Regulatory and Development Authority of India (IRDAI) released final regulations for registration and operation of branch offices by foreign re-insurers.

Currently, all global re-insurers have representative offices in India and operate from overseas while the Indian market has only one domestic re-insurer, General Insurance Corporation (GIC Re).

Kalpana Sampat, Principal Officer and Managing Director of Swiss Re, said the Indian direct insurance market has seen very good growth and the company plans to apply for the licence shortly to operate in a full-fledged manner in the domestic market.

Hitesh Kotak, Chief Representative for India at Munich Re, said the company is in the process of preparing its application for branch office in accordance with the Indian regulator’s requirements.

A representative of SCOR SE said the company intends to apply to the regulator for a composite licence. Ankur Nijhawan, Managing Director of Hannover Re, said his company is currently evaluating the regulations.

In its guidelines aimed at making it attractive for global re-insurers to set up operations in India, IRDAI has put in place a level-playing field for foreign re-insurers, which have a minimum retention of 50 per cent vis-à-vis the domestic re-insurer GIC Re. Minimum retention is the minimum amount of business that will be ceded to the re-insurer on an automatic basis to avoid the expenses associated with small cessions.

Swiss Re’s Sampat said the regulations allow an equal opportunity to the foreign re-insurer with an Indian branch, which in turn will help facilitate setting up a vibrant domestic reinsurance market.

Build local base

Industry experts also said that the presence of foreign re-insurers would help the Indian market developing technical expertise and underwriting skills.

Hitesh Kotak of Munich Re said, “We are keen to work on the best ways to combine Munich Re’s expertise and establish ourselves by closely working with clients and brokers to identify new opportunities.”

“We plan to achieve this through developing a strong local team which is closer to the clients and, at the same time equipped to explore our rich knowledge base and experience,” he added.

http://www.thehindubusinessline.com/money-and-banking/global-reinsurers-gearing-up-to-open-branch-offices-in-india/article7838538.ece?homepage=true

Finance Ministry to ease transfer pricing rules

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The finance ministry is streamlining safe harbour rules and advance agreements, two mechanisms to determine the price of services rendered by a multinational to its subsidiary in India.

Safe harbour rules – directives on margins the tax authorities should accept for the transfer price declared by an assessee – have drawn a tepid response since they were introduced a couple of years ago. There is also a huge backlog in advance pricing agreements (APAs), an ahead-of-time understanding between a taxpayer and the tax authority on an appropriate transfer pricing methodology.

ALIGNING INDIAN TAXATION WITH BEST PRACTICES
Safe harbour rules

  • Government looking at lowering safe harbour margins to make it attractive for companies to opt for it
  • Government to make safe harbour definition unambiguous bringing in more clarity

Advance Pricing Agreement

  • With close to 550 cases pending, government looking at expediting clearances through:
  • Sector-specific approach to cases
  • Increasing manpower and filling up vacancies

The move would simplify the tax regime, reduce litigation and help improve the business environment, a finance ministry official said.

The steps will involve lowering the margins in safe harbour rules and definitions will be reworked to remove ambiguities. India announced the safe harbour rules in 2013, but the high margins of up to 25 per cent on total operational profits have made it unattractive for companies to use them.

“We are addressing issues related to transfer pricing to align it with best practices. We are revising the safe harbour rules that will include revisiting the definition and revising the margins, considered high by companies,” said a tax official.

Information technology (IT) and information technology-enabled services (ITeS) companies with transactions of up to Rs 500 crore have a safe harbour operating margin of 20 per cent and those with transactions above Rs 500 crore have a margin of 22 per cent. Knowledge process outsourcing companies have a safe harbour operating margin of 25 per cent.

Experts argue there is ambiguity in the definition of IT, ITeS and knowledge process outsourcing companies with a lot of overlap. Moreover, the margins decided in tribunals or in advance pricing agreements turn out much lower, ranging between 15 and 18 per cent.

“The definitions under the safe harbour rules are fuzzy and sometimes overlap, creating confusion over what rate should apply and which company will fall under which sector. We are expecting clarity on the definition,” said Rahul Garg, leader, direct tax, PwC.

Manisha Gupta, partner, Deloitte Haskins & Sells, said the safe harbour margins were high. “The government agrees to far lower rates at tribunals and in advance pricing agreements,” she said.

The lowering of safe harbour rates will ease the advance pricing agreement backlog. The government introduced the advance pricing scheme in 2012 and there are over 500 applications pending.

“We are considering sector-wise handling of cases by officers to expedite decisions,” the tax official said. “We have already made a request for an increase in manpower to clear the backlog. We expect a decision soon,” he added.

India has the highest incidence of transfer pricing litigation worldwide. The number of cases scrutinised has quadrupled from 1,061 in 2005-06 to 4,290 in 2014-15.

Among measures recently introduced, the government said an officer would be assigned not more than 50 important and complex transfer pricing cases. Officers typically audit more than 70 cases at a time.

Besides, the tax department has incorporated range and multi-year data in transfer pricing calculations to bring Indian laws in line with international practices. Earlier, single-year data and the arithmetic mean were used to arrive at transfer pricing.

Earlier this year, the finance ministry allowed rollback advance pricing agreements so that multinational companies could settle taxes for previous years as well.

“The burden on tribunals, high courts, Supreme Court and even on the APA team can be substantially reduced if the Indian government revamps the safe harbour rules (that is, devising calibrated and more reasonable margins for the sector consistent with the margins finally arrived at post-tribunal orders/MAP/APA and providing clarifications on what constitutes software development activities, KPO, contract R&D,” said a Deloitte & Taxsutra report on transfer pricing.

Approximately over 40 per cent of APA applications are from the IT/ITeS sector. Up to September 2015, more than 575 APA applications have been filed with the APA authorities. Fourteen of these APAs have been concluded, of which 12 are unilateral and two bilateral (with Japan and the UK).

Source:Business Standard

Global Financial Secrecy Index: Hong Kong, Singapore’s ranks rise

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Hong Kong and Singapore have increased their ranking for financial secrecy, with the Chinese territory rising to number two, behind only Switzerland in a 2015 index of the world’s offshore havens, compiled by the Tax Justice Network (TJN).

Both the Asian financial hubs have made insufficient reforms to their corporate secrecy regimes, according to the London-based TJN, which campaigns for greater transparency in finance. Singapore’s ranking moved to fourth from the fifth place it held in the organisation’s previous index in 2013, when Hong Kong placed third.

“Singapore, in fourth place, poses many of the same threats that Hong Kong does: a lack of serious reforms to its corporate secrecy regime; a lack of interest in creating country-by- country reporting or in creating public registries of beneficial ownership,” the TJN said.

The two cities each account for about 4 per cent of the global market for offshore financial services, the organisation said. The hubs are well exposed to offshore flows because of rising assets under management and their status as regional financial hubs, according to the TJN.

“We do not have laws protecting bank secrecy and so we have never attracted foreign capital by such means,” a spokesman for Hong Kong’s Financial Services and the Treasury Bureau said in an e-mailed response to the TJN survey. “Hong Kong has all along been highly supportive of international efforts to enhance tax transparency and combat tax evasion,” the spokesman added.

The US was ranked third for its refusal to take part in a global system for exchanging bank data created by the Organisation for Economic Cooperation and Development.

Source: http://www.business-standard.com/article/economy-policy/global-financial-secrecy-index-hong-kong-singapore-s-ranks-rise-115110301720_1.html

 

Commerce ministry firming up Africa-focused export strategy

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The commerce department is firming up an export strategy focused on Africa, giving a new dimension to the government’s strategic push for ties with the continent that could offer a large market for Indian goods at a time of slowing global demand.

While India has offered a $10 billion credit line to Africa, the department has extended the benefits under the Merchandise Exports from India (MEIS) scheme to many goods headed for Africa to make the most of this credit. Senior government officials led by commerce minister Nirmala Sitharaman will next week apprise Parliament’s consultative committee on plans to address India’s continuously falling exports, with a focus on Africa and the country’s neighbours. The meeting is to be in held in Goa on November 6-7.

“Since the situation is not good globally, we have decided to focus on exports to Africa and our neighbouring countries. We can use our competitiveness in these markets to increase exports. We are working on an export strategy for next week’s meeting,” said a commerce department official, who did not wish to be named.
At the meeting the committee will also discuss Foreign Trade Policy (FTP) 2015-20 and its implications on exports, the official said. The steady decline in exports has triggered apprehensions that India may even miss last year’s exports figure of $310.5 billion. Merchandise exports fell nearly a quarter in September, the tenth straight month of decline, raising worries that shipments may fall short of last year’s levels.
The Directorate General of Foreign Trade (DGFT) has included exports of textiles and ready-made garments including cotton fabrics, both woven and knitted, and made-ups to the African countries under the MEIS. The industry, which has been grappling with falling exports, has approved of this strategy.

Following the revision, exports of value-added and labour intensive products such cotton dyed and printed fabrics, and made-ups, to African countries such as Mauritania, Mali, Niger, Benin, Angola, Senegal, Togo, Ghana, Kenya and Tanzania are expected to receive a huge boost. “This is a very positive step taken by the government and has come as a huge relief to the exporters of cotton textiles who are faced with declining exports,”Texprocil chairman RK Dalmia said in a statement.

PM Narendra Modi promises $10-bn credit line to Africa

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Promising $10 billion in credit to Africa to back a “partnership of prosperity” and pitching a broad alliance for global reform, Prime Minister Narendra Modi called for a permanent solution to the food security and agriculture subsidy issues at the Nairobi WTO meet, to be held later this year.

Addressing the inaugural session of the 3rd India-Africa Forum Summit (IAFS), Modi also made a strong pitch for deeper India-Africa ties in key areas of counter-terrorism, climate change and UN reforms. His nearly half-an-hour speech at the session was attended by 41 heads of state and government, including Presidents Jacob Zuma of South Africa, Mohammadu Buhari of Nigeria and Abdel Fattah al-Sisi of Egypt,t and hundreds of senior officials from 54 African countries.

He said India and Africa also seek a global trading regime that serves development goals and improves trade prospects. “When we meet at the Nairobi Ministerial of the WTO in December, we must ensure that the Doha Development Agenda of 2001 is not closed without achieving these fundamental objectives.”

The WTO’s General Council had accepted India’s demand for extending the peace clause till a permanent solution is found for its food stockpiling issue. For a permanent solution to the food security issue, India had proposed either amending the formula to calculate the food subsidy cap of 10%, which is based on the reference price of 1986-88, or allowing such schemes outside the purview of subsidy caps. If no solution is found by the agreed deadline of December 31, the peace clause will continue till the time a solution is found.

Calling for stronger ties in the strategic areas of counter-terrorism and climate change as well as on UN reforms, Modi told the visiting leaders, “We will raise the level of our support for your vision of a prosperous, integrated and united Africa that is a major partner for the world.”

Source: http://www.financialexpress.com/article/economy/pm-narendra-modi-promises-10-bn-credit-line-to-africa/158751/

Govt approves 16 FDI proposals worth Rs 4,722 cr

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The government has cleared 16 foreign investment proposals, including that of HDFC Capital and Ageon Religare Life Insurance Company, amounting to Rs 4,722 crore.
The investment proposals were approved following the recommendation for the same by the Foreign Investment Promotion Board (FIPB), headed by economic affairs secretary Shaktikanta Das.
“The government has approved 16 proposals of foreign direct investment amounting to Rs 4,722 crore,” the finance ministry said in a statement.
However, it rejected 8 proposals including that of Cipla Health Limited and Apollo Hospitals Enterprise Limited.
The Board cleared proposal of HDFC Capital Advisors Limited which alone entails investments of Rs 2,400 crore.
The company sought approval for issue of units to Green Light, it said.
“HDFC Fund proposes to make investments in equity, equity linked instruments, redeemable preference shares, non-convertible debentures and other debt securities of listed or unlisted investee companies engaged in real estate construction development projects which are permitted under the SEBI AIF Regulations as a Category II AIF,” it said.
Besides, Ageon Religare Life Insurance’s proposal worth Rs 559.96 crore was cleared by FIPB.
The approval was sought for the transfer of shares to Aegon India Holding thereby raising the foreign shareholding from 26 percent to 49 percent.
Among others, Sun Pharma Research Advanced Company Ltd’s proposal worth Rs 250 crore, Synergia Life Sciences Pvt Ltd (Rs 40 crore) and the post facto approval for Aditya Birla Nuvo’s Rs 377 crore plan were cleared during a meeting held on 29 September.