GauravBlog Logo

A Lion’s eye on the Bulls and Bears

“In India, companies may fall sick, but promoters rarely do!”

Gaurav's Blog

Categories

October 8, 2008

Pretty Ironic that Fed Rate is now 1.5% close to the culprit 1% some years ago

Just look at the Irony of it all !

When the Fed rate was as low as 1% for nearly a whole Year  some years ago it had created the scenario of Wanton Mortgage Lending and Wanton Mortgage  Borrowing and had led to a Surge in House Prices

When the House Asset Bubble Burst and the ugliness and lethalness of the Sub Prime Lending spilled over to Main Street Credit too ,we have witnessed an unprecedented scary financial crisis that has toppled major Financial Powerhouses and taken the World’s Financial System to the Brink and on the verge of collapsing.

Today, as a remedy in the current situation and  to inject liquidity into the financial system, all major Global Central Banks have dropped their Rate by 50 basis points or half a percentage point.

The Fed has dropped the rate to 1.5 % to inject funds to help to some extent  to clear the mess that was created in the first place by more funds being released into the System when the Rate was at record lows of 1% some years ago by tempting investment and commercial banks  to chase higher yeilds that were made available in riskier investment avenues and security products 

Poor Fed Governor,Ben Bernanke, has little option but to bring down the Rate to try and salvage the economy…..his predecessor,Alan Greenspan, is now being squarely blamed for the current crisis for reducing the rates to as low as 1% and moreover keeping it at this level for a long period of nearly a year…allowing rampant misuse, of the increased liquidity made available, by both lenders and borrowers in creating house asset bubbles…even when warning signals had emitted in 2003,Greenspan had played them down with misleading assurances to the Powerful Finance Committee of the Senate that Mortgage Lending presented a Low Risk  and that the increasing House Prices did not represent any bubble and one should not worry about it and to let the House Prices rise even further !   

What a catastrophic error in judgement ! What an irony now !

What else can you expect from HOV Promoters ?…they continue their Cloak and Dagger Game

What Did I tell you about HOV Services in this morning’s blog  and in the warning blog just one two days ago !

They have now just released to the BSE the outcome of their Board Meeting Today to discuss the Material Transaction Proposal…Have a Look below

Corporate Announcement

Scrip Code:532761   Company:HOV Services Ltd  
 

                     08 October 2008
Subject: HOV Services – Outcome of Board Meeting
Announcement: HOV Services Ltd has informed BSE that the Board of Directors of the Company at its meeting held on October 08, 2008 had resolved to empower the Steering Committee consisting of the Independent Directors to continue the negotiation with the buyer, to remove any variability in purchase consideration linked to the share price of the Company and any other contingency. The Board had viewed the Letter of Intent of the buyer, Valuation Report, draft of the Fairness Opinion and fully concurs with the documents and keeping in view the present market conditions, decided to postpone the Transaction in the best interest of the shareholders’ till further notice.

  

If the Offer is for US $ 202 Million and terms and conditions proposed are the same as that in the Original Offer of June 2008,then it would be irrational for the Board not to accept the Offer !

How can they say that they have postponed the Transaction in the best interests of shareholders when the market price is Rs 60 and each shareholder would be getting over Rs 150 per share held on distribution of US $ 91 million of the US $ 202 Million  plus get to retain the share too !

Who are they fooling ! ? They should have worded it ” In the best interests of the Promoters”

And so very Funny !…Promoters are to continue negotiating with themselves,albeit through the Steering Committee which includes Independent Directors…So what are they going to continue Negotiating !

BSE and SEBI must investigate into this Nonsense and Mockery

IT Stocks freefalling despite the Rupee depreciating a record 25% this Year…Why ?

The BSE IT Index opened this Year in January at 4519 and today it has recorded an intra day low of 2566

In just over Nine Months this Year it has plunged by 43 %

How did this happen despite the Rupee depreciating a record 25% against the Dollar this Year.The Rupee was at Rs 39 to the Dollar earlier in the Year and today is threatening to touch Rs 49 to the dollar

The IT Sector is clearly an Export Oriented Sector and major revenues are in Dollars.The leader ,Infosys receives nearly 70% of it’s revenues in Dollars…so any rupee depreciation should add to the Bottomline 

The reasons for the IT Sector plunging too despite the Rupee Depreciation are several

  • There has been  an overall market crash and the healthy P/E Multiple ratings of 25 to 30 range for the IT Leaders have slipped into the 11-15 range 
  • There is a US Recession underway and the BFSI Sector has simply collapsed in the USA. Major Financial Houses and Banks in this Sector in the USA have been the Major Revenue Source for Indian IT Companies…Revenues from this Source have dwindled considerably 
  • When the Rupee had appreciated to below Rs 40 to the Dollar earlier in the Year most IT Companies preferred to play safe and had significantly increased their hedging exposure to combat this currency risk expecting the rupee to strengthen further .They are therefore unable to take advantage of this Rupee Depreciation that an unhedged position would have allowed them to.
  • Facing a Recession,US and Europe Companies have substantially trimmed their IT Spending Budgets…thus there is less Business and more Competition.Many existing clients have been renegotiating with IT Companies to scale down existing rates
  • Incremental Staff Costs on account of New Hiring  and Raise in Salaries is also affecting the margins of IT Companies affecting Earnings and therefore Valuation   

Clearly there is Consolidation visible in the IT Sector and the way forward adopted to sustain growth and scale has been through the inorganic route…Two major Deals have taken place….HCL Info has outbid Infosys to take over Axon, UK and just today TCS has announced a US $ 505 million takeover of Citibank’s BPO Operations in India 

 

Rationally you should be Buying Now…No ! No ! Rationally you should be Selling Now !….What ?

Is it Rational to Buy,Hold or Sell Now ?

Or is it Irrational to Buy,Hold or Sell Now ?

There,I’ve covered all scenarios in the above two anxieties

Following the 508 pointor 5.11 % drop in the Dow yesterday to close at a Five Year Low of 9447 the Markets round the world  in Asia and Europe have capitulated today…capitulated is a strong word 

  • Nikkei 225 in Japan closed at a Five Year Low crashing 953 points or  9.38% lower at  9203
  • One of the Exchanges in Russia has halted trading till Friday as it showed a drop of nearly 15% in the first few minutes of trading
  • Indonesia halted trading as the Index hit the 10% lower circuit
  • All major Indices in Europe and Asia are down by between 5% to 9 % today

The Banking World is also on the Edge

  • Iceland has nationalised it’s Biggest bank
  • UK Government has announced a US $ 84.7 Billion rescue package for banks and will be infusing fresh Equity capital into them
  • Ireland,Austria and Greece have guaranteed all bank Deposits
  • US has already cleared a US $ 700 Billion rescue package for the Financial Sector 

So Who do you trust ?…your Banker…your Broker…your Advisor ?

Trust your own Instinct,Common Sense,Rationality and Reasoning

So is it Rationale to Sell Now ?…No…unless you firmly believe that Capitalism is dead

So is it Rational to Buy Now ?…Yes…Look for Opportunities….if you believe in Equity and are convinced that we are entering  Distress Price Levels and Panic Bottoms as the Sensex slips below 11000…Of course you need both Conviction and Cash to do this…and ofcourse the Confidence and Competency to make the Correct Stock Selections at Distress levels. 

If you are despondent,distressed ,disillusioned,devastated,depressed or even close to dead then pull yourself together and atleast Hold

HOV Services Board Meeting Today to Consider US $ 202 m buyout offer for it’s US and Hong Kong Operations..are they serious ?

Would you believe it !

Just two days ago I blogged on how the Promoters of HOV seem to be hoodwinking shareholders

And just yesterday the company informed the BSE of a Board Meeting to be held Today to discuss the Buy Out Proposal.Have a look at this announcement

Corporate Announcement

Scrip Code:532761   Company:HOV Services Ltd  
 

                     07 October 2008
Subject: HOV Services – Board Meeting on Oct 08, 2008
Announcement: HOV Services Ltd has informed BSE that a meeting of the Board of Directors of the Company will be held on October 08, 2008, inter alia, to review an offer received from Recap, LLC (“Recap”) to purchase; (i) all assets (including shares) owned by HOV Services, LLC (“HOVS”), a key subsidiary of the Company incorporated in Nevada, USA, (ii) the entire share capital in HOV Services (Beijing) Ltd (“HOVS B”), presently held by HOVS Holdings Ltd, another wholly owned subsidiary of the Company incorporated in Hong Kong; and (iii) all operating assets used by HOVS and HOVS B owned by the Company. This offer has been received by the Company in continuation of the material transaction notified to you vide the letter dated June 5, 2008.The said transfer, if approved by the Board of Directors, would require the approval of the members of the Company by an ordinary resolution, through a Postal Ballot pursuant to Section 293 (1) (a) and l92A of the Companies Act, 1956 read with the Companies (Passing of Resolution by Postal Ballot) Rules, 2001, and other regulatory approvals.

 Are they really serious? or are they just trying to revive their Share Price which is holding above Rs 60 today even as all World Markets have capitulated…Sensex is down by over 7% and is below 11000…Nikkei 225 has crashed a record near 10% today to close at the lowest in Five Years..yesterday Dow fell 508 points to close also at a Five Year Low.Jakarta Market has been halted as stocks have dropped over 10%  

If the Board approves this Offer and it is passed by an Ordinary Resolution by Shareholders and the Offer actually goes through and Monies are received then each Shareholder should get cash over Rs 150 for every share held and yet Retain the Share as US $ 91 m would be distributed to shareholders

Problem ,as I brought out in the blog day before, is can you trust these Promoters ?.They are also part of the Proposers Group …have they got the US 202 million that they have offered to buy out the US and Hong Kong Operations ? 

With the BFSI Sector in the Doldrums,a big question of Business Sustainability for HOV comes into sharp focus as HOV sources a major part of their BPO and KPO Revenues from clients in this sector

The Directors Report in the Annual Report states that

” Our,independent directors of the Board believe the Material Transaction is potentially in the best interest of the shareholders.However,the Board is not in position to recommend the transaction at this time till it has received advice and clearance from the legal advisor to the Company,investment banker retained to provide valuation advice and tax advisors for determining the overall impact to all stakeholders in regards to the proceeds received and distribution”  

The Directors also state in their Report

 “…macro economic climate has led to uncertainty in regards to satisfactory completion of the transaction”

Since this report was signed on June 5,2008 the economic situation has in fact worsened and put the World on the Edge

Oh ! and interestingly the June 5,2008 dated report also covers a meeting held by Directors on August 26,2008 !…How ?

The outcome of this Board meeting on August 26,2008 had also been conveyed to the BSE as below read more

Scroll to Top