Ubharte Sitaare Fund: Rs 250-crore export-oriented fund for MSMEs launched

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The initiative would play a catalytic role in contributing to the growth of the identified companies and would also have downstream benefits such as growth and diversification of India’s exports, impetus to brand India, and employment generation.

Union finance minister Nirmala Sitharaman on Saturday launched the Ubharte Sitaare Fund (USF) for export-oriented small and mid-sized companies and startups in Lucknow. Sitharaman had announced the fund in her Budget speech in 2020 in the backdrop of constraints faced by small and mid-sized companies in realising their export ambitions, stating that micro, small and medium enterprises (MSMEs) were important to keep the “wheels of the economy moving”.

The fund, jointly sponsored by Exim Bank and SIDBI, has a size of Rs 250 crore with a green shoe option of Rs 250 crore. The fund will invest by way of equity, and equity-like products, in export-oriented units, both in the manufacturing and services sectors.

Stating that the ambitious programme was to support the champion sectors, she said some developed countries like Germany have already tried this by identifying, supporting and hand-holding the champion sectors and giving them necessary technology and fund infusion. Ubharte Sitaare largely follows the same principal, she said, adding that induction of tech will itself bring a big difference to the small and medium units.

“A project that was tailormade for MSMEs to identify champions among them and also support them now also gets the additional benefit of UP’s one-district-one-product (OPOD) programme. UP has already completed the identification process of every product in every district, and also the champions in the state. So UP justifies the launch of Ubharte Sitaare programme,” she said, adding that this will help Sidbi to extend the credit and technology facility and boost capacity to go to the market to raise funds.

The FM highlighted the efforts taken by the government to provide a boost to the MSME sector in the country, including the launch of the production-linked incentive scheme and noted that the USF would make investments in export-oriented small and mid-sized companies by way of equity and equity-like products, and thereby help script a new paradigm of growth in exports. The initiative would play a catalytic role in contributing to the growth of the identified companies and would also have downstream benefits such as growth and diversification of India’s exports, impetus to brand India, and employment generation.

Harsha Bangari, deputy managing director, India Exim Bank, said India Exim Bank has developed a robust pipeline of over 100 potential proposals and supported several companies across a diverse range of sectors. SIDBI chairman & managing director Sivasubramanian Ramann highlighted several initiatives that have been taken in the recent past for the benefit of MSMEs in the country, more so in the state of Uttar Pradesh. Meanwhile, in another event, Punjab National Bank MD & CEO SS Mallikarjuna Rao handed over a loan sanction letter of Rs 5,100 crore for implementation of the Ganga Expressway project to the Uttar Pradesh Expressways Industrial Development Authority (UPEIDA).

The 594 km-long, eight-lane expressway project from Meerut to Prayagraj will cost nearly Rs 36,000 crore and will pass through 12 districts in UP. The amount of Rs 5,100 crore, under the securitisation process will be repaid to the bank within a period of 15 years from the toll to be received on the Agra-Lucknow Expressway. During this period of loan repayment, the expressway would continue to be owned and operated by UPEIDA.

Source: Financial Express

Auditors barred from putting a value on companies they are auditing

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An income tax tribunal has barred auditors from issuing valuation certificates to the companies they are auditing. This is set to impact several tax disputes around valuations in companies including angel tax disputes involving start-ups.

The Bangalore Income Tax Appellate Tribunal (ITAT) said that auditors of a company cannot double up as accountants especially in situations while dealing with “share valuation for the purpose of excess share-premium taxability.”

In several cases the income tax department has disputed valuations of companies around the time of investments.

The ITAT ruling came in a case where the tax department had challenged valuation of a company by its auditor.

In most cases, valuations of startups were challenged by the tax department, leading to “angel tax.” The angel tax controversy surrounds the valuations during various rounds of startup funding. In several cases, the revenues at startups kept reducing or remained stagnant, but their valuations increased. The taxman is questioning the premiums paid by the investors and wants to categorise them as income that would be taxable at 30%. In most cases, the investments made by angel investors, venture capital funds or any other investor have been challenged by the taxman.

Many accountants and valuers are already facing heat from the tax department. ET had, on December 25, reported that the tax department has started issuing show-cause notices to valuation experts, questioning the premiums several startups fetched during their investments rounds.

Valuation experts, however, say that they merely projected and calculated future growth, using the facts and figures provided by the startups. Many tax experts point out that the tax department’s approach to the fair value as a benchmark for calculating premiums may not be accurate in the context of startups.

Income tax officers claim that the scrutiny on startups is mainly due to concerns that black money may have changed hands.

ITAT Ruling

Companies and financial institutions mop up close to Rs 56,000 crore by way of fund raising through equities

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Companies and financial institutions have mopped up close to Rs 56,000 crore by way of fund-raising through equities so far in 2017. This is about 20% higher than the amount of Rs 46,733 crore raised in 2016.

Companies and financial institutions have mopped up close to Rs 56,000 crore by way of fund-raising through equities so far in 2017. This is about 20% higher than the amount of Rs 46,733 crore raised in 2016. The fund-raising has been helped by a booming stock market; the Sensex has gained by 22% in the year so far.

On Monday, the benchmark gauge closed at 32,514.94.The Nifty has put on 23.10% in 2017 closing Monday’s session at 10,077.10.Since the beginning of the year, firms have mopped up Rs 55,905 crore through initial public offerings (IPO), offers for sale (OFS), Qualified Institutional Placements (QIP), and rights issues among others, data from Prime Database showed.

A significant portion — close to 61% — of the total equity raised this year has been by way of QIPs at Rs 34,182 crore. State Bank of India (SBI)’s Rs 15,000 crore offer has been the biggest in 2017 so far — the lender had issued around 52.21 crore new shares at a price of Rs 287.25.

The issue was aimed at augmenting the bank’s capital adequacy ratio and for general corporate purposes.This is the highest in the past eleven years. Banks constituted 84% of the amount raised through QIPs.

Market participants said the need for Tier 1 capital and the necessity to meet Basel III requirements as the reasons for banks opting for QIPs.

After QIPs, the maximum amount of money was raised through IPOs in 2017.

In 2017, companies raised Rs 14,026 crore through IPOs. Listing gains and returns by newly listed companies as also the positive sentiment in the broader market are among the reasons attributed to the trend.

BSE, HUDCO, CDSL, Avenue Supermarts, Shankara Building Products and S Chand and Company are some of the companies who completed their IPOs in the last seven months.

The newly listed companies have given good returns to investors, the BSE IPO index a gauge of newly listed companies rose by 40% year to date.

Small enterprises raised Rs 716 crore through SME IPOs, this is the highest since 2012.

Market participants said the buoyancy in the primary market is set to continue with more than a dozen companies gearing up to hit the market with their offerings.

 

Source: http://www.financialexpress.com/market/companies-and-financial-institutions-mop-up-close-to-rs-56000-crore-by-way-of-fund-raising-through-equities/788648/

Bad loans at Indian banks climb to a 15-year high and may increase further Bad loans at Indian banks climb to a 15-year high and may increase further

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Bad debts at Indian lenders, especially state-run banks, have climbed to a 15-year high and may increase further, a central bank study showed.

Bad debts at Indian lenders, especially state-run banks, have climbed to a 15-year high and may increase further, a central bank study showed. Under the baseline scenario in a “macro stress test,” the industry’s gross bad-loan ratio may increase to 10.2 percent by March 2018 after climbing to 9.6 percent in March 2017, the highest since 2002, according to the Reserve Bank of India’s Financial Stability Report released Friday. Stressed assets, including soured debt and restructured loans, eased slightly to 12 percent in March 2017 from 12.3 percent in September 2016.

Weakness in the Indian banking system is a threat to growth in Asia’s third-largest economy and may stall Prime Minister Narendra Modi’s plan to revive credit growth from near a two-decade low. The soured loans have contributed to a $191 billion pile of zombie debt that’s cast the future of some lenders in doubt and curbed investment by businesses. “The RBI and the government are proactively taking steps to resolve NPA challenges in the banking sector,” Deputy Governor NS Vishwanathan said in a foreword to the report. “We have also activated prompt corrective action to stem the slide in the banking system.”

State-run lenders under performed their peers in the private sector, the report showed, which measures risks to the banking system by tracking factors such as profitability, asset quality and liquidity. Last month, the government gave new powers to the RBI in an effort to clean up the country’s bad-debt mess, which has left banks struggling with billions of rupees in nonperforming loans. The government amended the Banking Regulation Act to enable the RBI to order lenders to initiate insolvency proceedings against defaulters and to create committees to advise banks on recovering their loans.

The RBI in June ordered the banks to use the insolvency courts to find a solution for 12 of the debtors, though it didn’t name the institutions on its list. Earlier in the decade, many Indian steel and construction companies borrowed to fund expansion at a time when the economy was expanding at 9 percent to 10 percent a year. Loans turned sour as that growth slowed, weakening demand for steel used in construction projects.

Source: http://www.financialexpress.com/economy/bad-loans-at-indian-banks-climb-to-a-15-year-high-and-may-increase-further/744225/

PE/VC investments hit 10-year high at $3.1 bn in May

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PE, Venture Capital flows up 155% in May to $ 3 billion; SoftBank – Paytm deal tops

Private equity and venture capital (PE/VC) investments have recorded the highest monthly investments in the past 10 years at $3.1 billion in May 2017. For the third consecutive month in a year, the investment flow crossed the $2-billion mark.

 

The financial services sector topped the table on account of the $1.4-billion investment by Softbank in Paytm. This deal accounted 46 per cent of aggregate deal value for the month.

 

According to Ernst & Young (EY) data, the month recorded a 264 per cent increase in terms of value and 23 per cent in volume over May 2016. PE/VCs have invested $3,064 million across 55 deal in May this year as against $843 million across 45 deals in May 2016.

 

There were five deals of more than $100 million aggregating to $2.3 billion, accounting for 75 per cent of the aggregate deal value in May 2017.

 

Another important deal during the month was the $500-million investment by Canada Pension Plan Investment Board (CPPIB) in Indospace (a real estate platform for industrial and logistics parks) for a majority stake, thus taking the investments by Canadian pension funds in 2017 close to $2 billion.

 

Mayank Rastogi, partner and leader for PE, EY said that Indian PE/VC market has significantly matured over time. Five to seven years ago, the classic growth capital was the only meaningful capital pool available with limitations such as investment horizon and return expectations, and could not have suited some specific situations.

 

There are a variety of capital pools available ranging from angel/VC to buyout funds, family offices, pensions and sovereigns, corporate funds, debt funds, sector-focused funds providing solutions that address specific needs. This is one of the key drivers for continuing buoyancy in the PE/VC investments in India despite slow growth capital investing.

 

Financial services ($1.6 billion across 11 deals) emerged as the most active sector on account of the Paytm-Softbank deal, the largest deal in the financial services sector till date. The real estate sector bagged four deals worth $709 million, followed by e-commerce sector’s six deals worth $211 million in terms of activity.

 

May 2017 recorded $1 billion in exits and was the second consecutive month with more than $1 billion in exits.

 

The strong buyout trend established over the past two years continued into 2017 with $2 billion invested across 18 deals till date.

 

Between January and May, there was a significant increase of over 60 per cent compared to 2016 and over 100 per cent compared to 2015, both, in terms of value and volume.

 

Debt deals recorded the biggest monthly volume since 2014 with $377 million recorded across 12 deals.

 

Given the buoyancy in the public markets, open market deals emerged as the preferred mode of exit, accounting for 36 per cent of exits by value and 50 per cent by volume, similar to the trend seen in the previous month.

 

Till date, open market exits have accounted for 49 per cent of the total value of exits in 2017 compared to 25 per cent for the whole of 2016. May 2017 recorded $90 million in fund raise, a decline of 82 per cent and 76 per cent as compared to May 2016 and April 2017 respectively. The plans for fund raise announced during the month stood at $908 million.
There was one PE-backed initial public offering (IPO) in May 2017 (S  Chand, a publishing company, primarily in the education space), which saw Everstone exiting a 13.9 per cent stake for $48 million. Till May 2017, PE-backed IPO tally stands at four compared to eight during the same period in 2016.

 

Financial services emerged as the leading sector with exits worth $466 million across six deals followed by the healthcare sector with exits worth $260 million across three deals.

 

Source: http://www.business-standard.com/article/companies/pe-vc-investments-hit-10-year-high-at-3-1-bn-in-may-117061300599_1.html

Smaller VC firms ride on SIDBI and local investors

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In the past six months, several venture capital (VCs) funds have raised money or are in the process of raising money. These include funds from IDG Ventures, DSG Consumer Partners, Orios Venture Partners, Kae Capital, Blume Ventures, Saama Capital, Fireside Ventures, Stellaris Venture Partners, Endiya Partners and Pravega Ventures.

 

What’s common between them is Sidbi, the lending institution managing several start-up funds, including the government’s, which plays an anchor investor to many of these funds with a 15-20 per cent stake. This is helping these funds raise money from other domestic investors — family offices and high networth individuals (HNIs).

 

‘‘Fundraising is not easy, especially for smaller VC firms. They don’t get large institutional investors; they get family offices and HNIs,” says a VC. Having an institution like Sidbi comforts other local investors.

 

‘‘Sidbi does extensive amount of due-diligence, reporting, appoints board members. They have a proper investment committee. So, you have comfort that there’s institutional due-diligence on the fund,” says Rehan Yar Khan, managing partner, Orios Venture Partners.

 

In February, Sidbi said its fund of funds operations has sanctioned Rs 1,112 crore to 30 funds in FY17, double of Rs 607 crore for 16 funds it did in FY16. Sidbi manages many fund of funds, including the government’s Rs 10,000-crore fund of funds for start-ups.

 

The funds, which have received Sidbi’s commitment under this programme, are Orios Venture Partners Fund II (Rs 50 crore), Kae Capital (Rs 45 crore), and two little known funds, Saha Trust (Rs 10 crore) and Kitven Fund III (Rs 5 crore), Sidbi disclosed in response to an RTI query from Business Standard. There are others like Blume Ventures, IDG Ventures, India Quotient, which have received Sidbi’s funding.

 

Interestingly, several funds — maiden funds and second funds — have hit the market in the past one year, all targeting domestic investors. Yet, all of them are able to raise money and announced their first or final close, which shows the increasing depth of domestic investors.

 

These include professionals in large firms, like Infosys founders, who have made money through ESOPs, family offices of traditional business families and others which are starting to get organised.

 

Many wealth management and advisory firms have come up, who are able to reach these family offices in a more effective way.  But are we seeing too many funds raising too much capital?

 

‘‘There’s a big need for early stage capital. In the US, the size of the VC market is $25-26 billion and the seed capital of $22 billion. As opposed to that, we are at a pittance. The game has not even started here,” says another VC. Besides, bigger VC firms like Accel, Sequoia also do seed-stage deals, but mostly do VC.

Source: http://www.business-standard.com/article/economy-policy/smaller-vc-firms-ride-on-sidbi-and-local-investors-117030900003_1.html

Fund mop-ups via IPOs in 2016 three-fold higher than a year ago

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Money raised through public issues in 2016 so far is three fold higher compared to the same period in 2015. As many as 21 companies have debuted on the bourses so far raising Rs 19,379.09 crore, an increase of around 205% compared to last year when 15 companies raised Rs 6,346.02 crore, data compiled from Prime Data base shows. During the same period in 2014, four companies raised Rs 4,029 crore.

 

Of the issues that hit the primary markets in 2016, the Rs 6,000-crore initial public offering (IPO) of ICICI Prudential Life Insurance, a subsidiary of ICICI Bank, was the biggest. This is followed by the issue of small finance bank, Equitas Holdings which raised around Rs 2,000 crore. Punjab National Bank’s (PNB) subsidiary firm, PNB Housing Finance will hit the primary market on Oct 25,the company is expected to raise Rs 3,000 crore in a price band of Rs 750 – Rs 775.

 

According to data compiled from the website of Securities and Exchange Board of India (Sebi), draft documents of as many as 10 companies are under process of receiving the market regulator’s approval for their public issues. Among the companies whose issues are yet to receive Sebi’s approval include Aster DM Healthcare, Avenue Supermarts, Security &Intelligence Services (India) and Continental Warehousing Corporation. The IPOs of these companies are expected between Rs 1,000 and Rs 2,000 crore.

 

On the other hand, as many as 15 companies have received Sebi’s approval for their public issues which are expected to raise around Rs 4,800 crore. Of the issues, the Rs 1,000 crore IPO of pharma company Laurus Labs is the biggest issue followed by real estate firm Paranjape Schemes whose issue is expected to raise Rs 600 crore.

Source: http://www.financialexpress.com/markets/indian-markets/fund-mop-ups-via-ipos-in-2016-three-fold-higher-than-a-year-ago/428823/