29th July 2004: Essar Steel is one of the largest iron producers in India. It is planning to raise $200m to replace its high cost debt and meet its working capital requirements. Though, the instrument to be used for raising the funds is yet to be finalised.

            According to sources, the company is expected to pass a resolution to this effect at its annual general meeting (AGM). The AGM is scheduled on August 7, ’04.

27th July 2004: The Finance Ministry has indicated that the Income-tax Department circular issued in January, 2004 on taxation of foreign entities outsourcing certain activities to the country may be revised.

The complexities involved in the BPO sector are much more intricate and the circular is inadequate to deal with the problems of taxation arising in that area. The board will take appropriate decisions after considering the representation and factoring in the recommendation made by the Emerging Issues Task Farce.

The CBDT had declared that a “considerable portion of the profits” derived by foreign entities from outsourcing of their core revenue generating business activities to India would be taxable under the Income–tax Act. If the Indian entity were to constitute a “permanent establishment (PE)” of the non-resident or foreign company in India. [Source: Business Line, May 22, 2004.]

10th July 2004: The rate of interest has not been changed on small savings instrument like P.P.F., N.S.C., P.O. Schemes and government of India Relief Bonds (taxable), which currently offer 8%. It is intended to replace the issuance of LIC Varistha Pension Bima Yojana Policy with senior citizen saving scheme, which also offer 9% per annum.

The investment limit for FIIs in the debt funds is aimed to rise from $1 billion to $1.75 billion i.e. addition of approx. Rs 3,450 crore. However, it would remain to be seen that whether the FIIs will use the opportunity in the wake of the expectations of an increase in interest rates and the end of the debt party.

23rd July 2004: The guidelines on employee stock option and purchase schemes (ESOP and ESPS) has been amended by the Securities and Exchange Board of India (Sebi) in respect to provide for mandatory disclosures, pricing and appointment of merchant bankers. The capital market regulator has received queries seeking clarification, subsequently for the changes in guidelines in June ’03. Sebi said in a notification that, the board has approved certain modifications to the guidelines, after considering the recommendations of the JR Verma panel on ESOP and public comments.

            As per the new norms, the market price would mean the latest available closing price, prior to the date of the board meeting in which options are granted or shares are issued. The exchange where there is highest trading volume on the said date should be considered when the shares are listed on more than one exchange.

17th July 2004: A group of domestic corporates has either called off or postponed their ECB plans, since they were on verge of striking debt financial deals in the international market.

Due to depreciation in rupee along with a slight increase in interest rates for Indian debt papers in the international market have made the cost of raising debt abroad almost equal to the cost of raising funds in the domestic markets.

            The reason for calling off some of the ECB deals can be the restrictions on end use of commercial borrowings abroad. According to Industry sources, ECB deals which have been either temporarily deviated or postponed, run into around $1bn. The companies involved are public sector majors such as NTPC, NHPC, and Power Finance Corporation and private sector companies such as Idea Cellular, Jindal Stainless and Ballarpur Industries.

Majorities of these companies are now planning to capture the domestic bond and syndicate market for striking debt-financing deals at much finer rates. Some of the companies are taking a ’wait and watch’ approach before taking a final decision on their debt raising programme.

            Before, companies were also raising ECBs for their working capital requirements. Now RBI has restricted such borrowings only for their project financing.