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August 14, 2008

Macquarie Securities Group: Part FII Gains now as FDI !?

 

Glanced at an article in today’s Economic Times where the Macquarie Group has disclosed that it had invested  US $ 200 million in Indian operations.It is Increasing Headcount and is already in the top five Institutional Brokerage Houses in India 

Could not help wondering if such Investments could be viewed as Monies being reinvested from part of Huge Profits (in all probability totally tax free) in Equity Investments in our Secondary Markets in India on Mumbai Stock Exchanges made by Macquarie as a Foreign Instituitional Investor (FII) registered with SEBI

Have a look at the four FII registrations of Macquarie with SEBI as of date

Macquarie Group Registrations as FIIs with SEBI in India till date

Sr No

Entity

Place

Date of Registration

Sensex Close on Day of Registration

Sensex Surge from Date of Reg

1

Macquarie Bank Ltd

NSW,Australia

Jan 20,2005

6183

140 %

2

Macquarie Investment Management Ltd

NSW,Australia

Apr 12,2006

11356

31 %

3

Macquarie IMM Investment Co Ltd

Seoul,South Korea

Feb 14,2007

14010

6 %

4

Macquarie Capital Investment Management LLC

New York,USA

Mar 13,2008

15357

(3 %)

Sensex is 14852 at 2 pm now on Thursday,August 14,2008

Macquarie entered India in 2005 as a FII and has registered a seperate FII every single Year since then

Clearly Macquarie should have had a great run as a FII in 2005 rolling into 2006 and 2007 too…If FIIs brought in @ US 35 $ Billion in 2005-2007 Period as an Active and Aggressive Investor Macquarie too would have had a sound share of this Quantum and it’s Gains (Probably Tax Free) from Investments in Indian Equities would have easily crossed half a billion dollars …possibly over a Billion

So in a sense it’s made Huge Tax Free Gains in India as an Equity Investor and is re-routing back only a small  part of such Gains into Indian Operations as a Broker,Wealth Manager and a Non Banking Finance Company…all within a space of three to four years

Can you look at it this way ?…India is welcoming it’s Own Money in as Foreign Direct Investment (FDI) !

Draw a parallel…Indian Promoters of Companies declare Huge Tax Exempt (In their Hands) Dividends and re-route the same back into the Company as  Preferential Equity allotment to Promoters at Low Price and increase their stake too in the process

Kya Baat Hai !

Reliance Mutual Fund raises Corporate Governance Issues in Novartis

 

Hey ! Guess What ! now Reliance Mutual Fund,who hold 5% of the Equity  in Novartis have questioned the Inter-group Lending in Novartis…As at March 31,2008,Novartis Group Companies owned Rs 340 crs to Novartis…that’s 76% of the Networth of Novartis……also during 2007/8  the quantum of Intergroup Loan Transactions was as high as Rs 2457 crs

Check it out in the Economic Times Today at

http://economictimes.indiatimes.com/Personal_Finance/Reliance_MF_doubts_Novartis_inter-group_deals/articleshow/3362524.cms

Now this is the way to Go…Shareholder Activism is now rising in India and we need Big Shareholders like Institutions and Mutual Funds to keep the Managment and Promoters of the Company on their Toes  with regard to efficient operations and proper and full disclosures in the Annual Report…They should act as Guardians for Minority Shareholders

Questions that have been raised for Novartis lending to it’s Group Companies are

  • Why are Group Companies being supported by Cheap Capital from Novartis ?
  • What is the Interest rate Charged and is there any security ?
  • Such a High Quantum of Lending may require Novartis to register with RBI as a Non Banking Finance Company?
  • If you do not need these huge Funds,why not return them to shareholders as Dividend?

Novartis has clarified that the Loans are on call and have been given at arms length at Market Interest rates and have been audited and relevant sections of the Companies Act has been complied with 

The Reason I raise this Blog is that there are so many Companies which are cash rich and do not deploy all the Cash in their Operating BusinessSesa Goa for example…..However their Other Income is lower and not in proportion to such surplus Investible Funds in the Books….By lending at lower rates or showing them as Interest free Business Advances to Group Companies during the year and having them payback before year end so as to not reflect them in the Balance Sheet,shareholders are deprived of the Company earning appropriately on such funds……The Risk in Sesa Goa is that it is doing so well and can divert Huge Surplus Funds to Vedanta Group Companies….check earlier blogs

Sesa Goa is debt free and has been generating significant surplus Cash. Other Income in Q1 FY 09 shows a leap to Rs 61 Crs from under Rs 11 crs in Q 1 FY 08…In fact whole of FY 08 the Other Income was Rs 71 crs.There should be over Rs 5500 crs Cash in the books at March 31,2009 and one can expect Other Income Figures to leap past Rs 300 crs as Interest rates perk up…If they don’t you can question the Vedanta Group of Mr Anil Agarwal (Sterlite,Hindustan Zinc and Balco)…these would be most probably be reflected in Group Loans and Advances and probably at preferential interest rates  read more

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