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Corporate Deleveraging to Remain Slow in FY18; Impact of Rising Commodity Prices to Vary
Jun 01,2017

India Ratings and Research (Ind-Ra) does not expect a meaningful deleveraging of corporate borrowers in FY18. Broader macroeconomic indicators suggest improving demand conditions; however, the recovery in the operating profitability levels of Indian corporates is likely to be moderate in FY18.

The agency expects corporates operating in consumption and export-oriented sectors to exhibit a moderate improvement in their credit profiles. However, the credit profiles of corporates in investment-oriented sectors are unlikely to meaningfully improve in the near term. Although better demand conditions will support an improvement in manufacturing activity, service sector corporates will continue to outperform manufacturing sector corporates.

Although global trade continues to improve despite rising protectionism and political uncertainty, the possibility of an escalation in trade-protectionism and rising populism in Western countries remain the key risks for the global economy, as well as for Indian corporates.

EBITDA Growth to be Limited in FY18: Ind-Ra expects EBITDA levels of corporate borrowers to grow 6%-8% in FY18 on an aggregate basis (FY17 estimate: 3%-5%; FY16: 6.4%). This will be driven by increased consumer demand, higher commodity prices and improving demand for exports. Operating performance, however, will vary across industries. Despite improving demand conditions, corporates in sectors such as infrastructure, telecommunications, and iron and steel are unlikely to exhibit major improvements. Ironically, sectors where corporates have a relatively better credit profile are likely to register better improvement compared with sectors where entities have a highly stressed credit profile. As a result, the recovery in the overall credit quality of India Inc. will remain limited.

Varied Impact of Rising Commodity Prices: At end-March 2017, the World Banks non-energy price, energy price and base metal price indices were up 9.3%, 38% and 22.4% on a year-on-year-basis, respectively. Higher commodity prices are likely to have a varied impact on Indian corporates. In addition to commodity producers, merchandise exporters will benefit from higher commodity prices, as global reflation will support an improvement in demand conditions, particularly in emerging markets, thus boosting global trade. However, heavy users of commodities, which previously benefitted from a decline in input costs, will witness the benefits of improving demand being offset by higher commodity prices. The agency expects commodity prices to remain range-bound over the next 12 months. However, if uncertainty over global economic growth arises, commodity markets could exhibit further volatility, which could dampen the expected recovery in operating profits.

Corporate Leverage to Remain High: Corporate leverage continued to remain high in FY16, as the aggregate EBITDA moderately increased (up 6.4% yoy). The aggregate net leverage of the largest 420 borrowers analysed by Ind-Ra remained high at 5.43x (FY15: 5.42x). At FYE16, 29.5% of the total debt (INR8.56 trillion of INR29 trillion) of the entities in this sample set belonged to companies with an interest coverage below 1x. An additional 12.7% of debt (INR3.5 trillion) was held by companies with an interest cover of 1x-1.5x.

The agency estimates a similar situation for FY17, as aggregate EBITDA is likely to have grown 3%-5%. A meaningful credit quality improvement will still take time, as about two-fifths of the borrowing by the largest 420 borrowers remain with entities with weak ROCE levels (< 5%). Stressed corporates with large refinancing requirements are likely to face severe challenges in raising debt, as the balance sheets of mid-sized PSU banks remain stretched due to high NPA levels.

Capex Activity to Remain Muted: Capex, as measured by gross fixed capital formation (GFCF), registered a sequential decline in three consecutive quarters (4QFY17-2QFY17), as capacity utilisation levels continued to remain range-bound (about 70%). In addition to muted private sector capex activity, the capex activity of PSUs remained limited. In the absence of capex growth, corporate EBITDA growth will remain moderate, with the only triggers being consumption and exports. Furthermore, private corporates have shifted their focus to productivity improvements and will continue to refrain from capex in the near term. Ind-Ra believes that low capacity utilisation levels will lead to higher M&A activity in the near to medium term. As a result, the revival of the capex cycle is unlikely in the near term.

External Risks Could Delay Recovery: A potential rise in global protectionism remains one of the most likely risks that could delay recovery in earnings and consequently credit profiles of corporates. Although global economic recovery continues, economic policies of the new government in the US and the monetary policy stance of central banks worldwide could have a bearing on capital flows and currency markets.

Ind-Ra studied the impact of currency volatility on the credit profiles of corporates and found that nearly half of the top 100 listed forex borrowers EBITDA levels have a negative sensitivity to FX movements. The agencys study indicates that in addition to depreciation, an appreciating Indian rupee affects corporate borrowers. At FYE16, borrowers in the sample set analysed had 64% of the gross FX exposure unhedged, indicating sharp volatility either ways could have an impact on cash flows.

*The economic data on India mentioned above and in the report is based on the old GDP series compiled using the old IIP and WPI series. New GDP figures released on 31 May 2017 have been compiled using the new series of the IIP and the WPI.

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Combination of push & pull factors can help India become global hub for electronics manufacturing: P.P. Chaudhary
Jun 01,2017

A combination of push and pull factors like minimum professional charges, low manufacturing costs together with huge population and vast geographical area can work in favour of India and help it become global hub for electrical and electronics manufacturing sector, Union Minister, Mr P.P. Chaudhary said at an ASSOCHAM event.

n++Two push and pull factors are working in favour of India and the complete ecosystem has been generated, the pull factor is looking at the 1.25 billion population and the vast area as such every company intends to invest in this country,n++ said Mr Chaudhary.

n++The push factor is that all across the globe, while per hour professional and engineering charges come to more than $3.5 but in India it is less than even $1,n++ added Mr Chaudhary.

n++So this is a place where these two factors, pull and push can work in favour of India and above all, the overall cost for creating the manufacturing hub here is much less than in other parts of the world,n++ he said further.

The Union Minister also stressed upon the need for India to promote research and development to stay ahead and keep abreast of technology in this digital age.

n++There is a need for developing a commercially viable research ecosystem funded by the government, industry and academia to promote the next wave of electronic technology in the country and innovations in our journey to becoming a developed nation,n++ said Mr Chaudhary.

He said considering that demand for electronic hardware in India is projected to increase from $45 billion in 2009 to $400 billion by 2020 it represents huge opportunity for making investments and attaining huge growth in electronics manufacturing sector.

Ministry of Electronics and IT has initiated various schemes like MSIPS, EMCs, ITIR, EDF and others to attract global companies to set up their manufacturing base in India.

n++The inherent objective of these policies and schemes is to bring about a fundamental shift in the nature of foreign investments coming to the country rather than being just a low-cost manufacturing destination,n++ said Mr Chaudhary.

n++India is acknowledged as a true partner which adds significant value in production cycle of these products,n++ he added.

He informed that the Union Government has also amended its general financial rules and made special provision for its digital procurement platform, government e-market place to give a boost to the start-ups and for local manufacturing of goods and services in the country.

Highlighting that availability of skilled manpower is another pre-requisite for developing robust manufacturing ecosystem in the country, Mr Chaudhary said, n++Under the Digital India programme, my Ministry has initiated a scheme for skill development in ESDM sector which shall cover all the state and UTs of the country in order to facilitate creation of an ecosystem for development of ESDM.n++

The Minister further said that the government is ensuring time-bound and mission mode implementation of various programmes and initiatives like - Digital India, Make in India, Swachh Bharat, Start-Up India, Stand-Up India, Jan-Dhan Yojana and others at an unprecedented scale and speed.

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Sustained increase in new orders underpin output growth: Nikkei India Manufacturing PMI
Jun 01,2017

The Indian manufacturing sector stayed in expansion mode in May as a further upturn in new business supported output growth. That said, rates of increase eased in both cases. Spending patterns varied, with employment down but quantities of purchases up from April. Meanwhile, input costs rose at the slowest rate since last September, whereas charge inflation accelerated. With regards to future performance, goods producers were at their most optimistic in six months.

Remaining above the no-change mark of 50.0 in May, the headline Nikkei India Manufacturing Purchasing Managers IndexTM (PMITM) signalled a further improvement in operating conditions. That said, the PMI was down from 52.5 in April to a three-month low of 51.6.

May data pointed to softer expansions in both new orders and production. Incoming new work rose at the weakest pace since February, with slowdowns evident in the consumer and intermediate goods categories. Capital goods producers, meanwhile, recorded a contraction in order books. Output growth across the manufacturing sector as a whole was at a three-month low.

Businesses further increased their purchasing activity during May. Moreover the upturn in buying levels was more pronounced than in April. Subsequently, stocks of purchases rose, with the pace of accumulation the quickest in the current three-month sequence of growth.

On the other hand, holdings of finished goods decreased in May as companies sought to fulfil orders from stocks. The rate of depletion was sharp, and the most pronounced since August 2015. Quicker reductions in post-production inventories were seen in each of the three monitored market groups.

International demand for Indian-manufactured goods deteriorated in May, as signalled by a decline in new export orders. The contraction was only slight, but ended a three-month sequence of growth.

Amid reports of the non-replacement of voluntary leavers and shortages of suitable labour, manufacturing jobs in India decreased in May. The fall in staff numbers was centred on the intermediate goods category, with marginal growth noted elsewhere.

Concurrently, outstanding business volumes rose again, marking a one-year sequence of accumulation. Despite accelerating since April, the pace of expansion in backlogs was modest.

Cost burdens facing Indian goods producers continued to rise in May, with chemicals, metals, paper and plastics all reported to be up in price. The rate of inflation softened to the slowest in eight months, however, and was below the long-run series average. In contrast, factory gate charges increased at a slightly quicker pace than in April.

Business confidence improved in May, with firms expecting new product launches, machinery acquisitions and marketing campaigns to support output growth in the year ahead. Moreover, the degree of optimism climbed to a six-month high.

Commenting on the Indian Manufacturing PMI survey data, Pollyanna De Lima, Economist at IHS Markit and author of the report, said: The upturn in the Indian manufacturing sector took a step back in May, with softer demand causing slower expansions in output and the amount of new work received by firms. Moreover, there was a renewed decline in new export orders.

Echoing a more positive tone, the PMI dataset highlighted a stronger increase in businesses input purchasing, while optimism reached a six-month peak. Additionally, cost inflationary pressures cooled.

With inflation under control and manufacturing growth below par, we may see the RBI changing neutral monetary policy stance to accommodative in coming months in order to support the economy.

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4 mega food parks to become operational in next 3 months; 300 new cold chain proposals received: Sadhvi Niranjan Jyoti
Jun 01,2017

Up to four mega food parks will become operational during the course of next three months, Union Minister of State for Food Processing Industries, Sadhvi Niranjan Jyoti said at an ASSOCHAM event.

n++Only two mega food parks became operational between 2009 and 2014 whereas six mega food parks became operational between 2014 and 2017 likewise 42 mega food parks will become operational by 2019,n++ said Sadhvi Jyoti.

Highlighting that the government sanctioned 63 cold chain projects since 2014, the Union Minister said, n++We have received 300 proposals for setting up new cold chain projects, which shows that industry across India is taking interest in food processing sector as we have received many applications from north-eastern states like Nagaland, Manipur and others.n++

She said that while the government is working at a rapid pace for development of food processing sector, the industry should impart training to the farmer to take utmost care of quality of produce.

The Union Minister said that she had suggested her Ministry to provide storage facilities for perishable products in the market itself like for wheat and rice, so that farmer can take it to the desired place later. n++I hope this suggestion will be considered by the cabinet.n++

Talking about her recent meeting with Uttar Pradesh (UP) chief minister, Yogi Aditya Nath, the Union Minister said, n++We and the state government will ensure that land, power, safety and all sorts of facilities will be provided to industrialists willing to set up food park in the state.n++

She said that she was surprised to note that there was not even a single food park in such a huge state which is equivalent to a countrys size.

Earlier, while addressing the ASSOCHAM conference, Mr D.K. Singh, chairman, APEDA (Agricultural and Processed Food Products Export Development Authority) said that his organisation is working on horticulture sector to increase export basket.

He informed that APEDA is trying to export and promote mangoes in a big way.

n++When we think of a business plan in logistics development we must also think those aspects which are relevant in a particular market,n++ said Mr Singh highlighting that feedback received from Korea on export of mangoes was not good, in terms of quality, packaging and other related issues.

n++We realised that we focus only on the backward integration in the system but we never thought what is the co-relation and forward linkages up to the country where it is reaching,n++ he added.

He rued the fact that logistics for cold chain for import items is better than for the export items as those products have to be brought and quickly distributed to the consumers.

n++That segment is well off and the industry is ready for a distribution network but not for exports and industry is not ready to work with farmers,n++ said the APEDA chief.

He added that merely creating few cold storage for potato, apple, grapes would not be sufficient in order to increase farmers income, as such a system needs to be put in place to collect the farmers produce at the farm, sort it, grade it in next 5-6 hours and then transport to a place having pre-cooling facility and from there to the pack house for higher level of packaging and processing and then from that point it is taken to the port for export.

n++So the entire chain has to be addressed and preferably by a chain of operators who have interest in the entire value chain,n++ said Mr Singh.

n++We are working on a scheme for next three years where we have made for the first time significant role for service provider in a big way and our proposal is that EFC stays and once our approval of EFC comes the scheme will be implemented and we will seek suitable and viable proposals from service providers who are ready to work with the farmers and for exports,n++ further said the APEDA chairman.

Dr Shakil Ahmed, joint secretary, Department of Agriculture and Cooperation stressed upon the need for industry and government collaboration in areas like applied research, in developing crop/product specific detailed protocol of cold chain management as that would help lot of start-ups to come up and really work for the development of this sector and even the government is more than willing to support in terms of infrastructure facility in this regard.

n++Industry should play more active role. We have identified more than 52 sectors in clusters that are export oriented zones in the country of which 10 have almost started working as such the industry should come up in a big way and collaborate,n++ said Dr Shakil.

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Shifting of financial year to January-December should be done by all states in one go, not in turns: ASSOCHAM
Jun 01,2017

The Centre, states and all the Union Territories need to evolve a consensus on the lines of the Goods and Services Tax for shifting to January-December financial year and move to the new system in one go throughout the country instead of some select states choosing to shift to a new financial year, creating practical difficulties for trade and industry, ASSOCHAM has said.

n++For pan-India businesses, the accounting standards and the financial year of all the government organisations should be uniform. We should not have a situation where the industry and trade has one set of books for Madhya Pradesh, Telangana and Andhra Pradesh and the other for Uttar Pradesh and yet another for the Central government,n++ said the ASSOCHAM. It said if all the states and the Centre agree to a shift of the financial year from April-March to January-December, NITI Aayog should work towards building a consensus and then, n++let the entire country shift towards the calendar year becoming the financial year in one go.n++

n++This is even more important in the wake of roll out of the Goods and Services Tax from July 1, which will unite the entire country into a single market. The businesses are all busy and working overtime to meet this deadline in terms of putting their IT infrastructure in place and in sync with the GSTN. At this point in time, if some select states choose to shift their fiscal year to a new system, it could be quite a task for the trade and industry; first to comply with the GST, then to align with the financial years of different states. Uniformity is the key, whatever is the financial year, that is critical,n++ the Chamber Secretary General Mr D S Rawat said.

He said, if there is a merit in shifting to the January-December financial year, then, it should not be difficult for the states to come to a consensus. Although , states have their own Constitutional right to have their accounting methods, for the sake of ease of doing business and ease of convenience to the common citizens, uniformity is essential.

n++In any case, under the impending GST regime, there is a dual registration with the Centre and the states. Ideally, both must have a uniform financial year t. Now with a few states taking the lead in shifting to the new system, the system of IT network would have to be re-configured. Although, the financial year may not come under its purview, the idea for a consensus building can be flagged at the meeting of the GST Council itself, purely on voluntary basis. Merits of one nation, one tax should be disseminated along with other best accounting practices,n++ the chamber said, making a plea to the NITI Aayog to work out an ideal system.

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India signs Loan Agreement with the World Bank for USD 36 Million for n++Himachal Pradesh Public Financial Management Capacity Building Programn++
Jun 01,2017

An agreement for IBRD Credit of USD 36 Million from World Bank for n++Himachal Pradesh Public Financial Management Capacity Building Programn++ was signed today in New Delhi by Shri Raj Kumar, Joint Secretary (MI), Department of Economic Affairs on behalf of the Government of India and Mr. Junaid Kamal Ahmad, Country Director, World Bank (India) on behalf of the World Bank. The Implementing Entity Agreement was signed by the Additional Director, Treasuries, Accounts and Lotteries, on behalf of Government of Himachal Pradesh (GoHP), and the Country Director (India) on behalf of the World Bank.

The objective of the project is to improve the efficiency of Public Expenditure Management and Tax Administration in Himachal Pradesh. The Program is expected to contribute to enhancing efficiency of key departments, improving budget credibility, strengthening systems and procedures to improve fiscal discipline, improving revenue administration to increase fiscal space, and targeted organizational reforms including human resource reforms. The Program focuses on the priority areas identified by the GoHP, which were articulated in various stakeholder workshops during Program preparation.

The programme size is USD 45 million, of which USD 36 million will be financed by the Bank, and the remaining amount will be funded out of State Budget. The programme duration is 5 years.

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GDP growth slows to 6.1% in Q4FY2017
May 31,2017

Indias Gross Domestic Product (GDP) rose at moderated pace of 6.1% in Q4FY2017, which is the lowest pace of growth in last nine quarters. The GSP growth decelerated sharply from 7% growth recorded in the preceding last quarter and 8.7% surge posted in the corresponding quarter last year.

Another measure of economic activity - Gross Value Added (GVA) grew at slower pace in last 12 quarters at 5.6% in Q4FY2017 compared with 6.7% in Q3FY2017 and 8.7% in Q4FY2016.

Growth rates in various sectors for Q4FY2017 are as agriculture, forestry and fishing (5.2%), mining and quarrying (6.4%), manufacturing (5.3%), electricity, gas and water supply and other utility services (6.1%) construction (-3.7%), Trade, hotels, transport, communication and services related to broadcasting (6.5%), financial, real estate and professional services (2.2%), and Public administration, defence and Other Services (17%).

The GDP growth for FY2017 stood at 7.1%, in line with second advance estimate. However, the GDP growth has showed moderation from 8% growth in FY2016. The GVA at basic prices in 2016-17 is 6.6% against 7.9% in FY2016. The sectors which registered growth rate of over 7.0% at constant prices are public administration, defence and other services (11.3%), manufacturing (7.9%), trade, hotels, transport, communication and services related to broadcasting (7.8%),electricity, gas, water supply other utility services (7.2%) .The growth in the agriculture, forestry and fishing, mining and quarrying, construction and financial, real estate and professional services is estimated to be 4.9%, 1.8%, 1.7% and 5.7% respectively.

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Eight core infrastructure sector output rises 2.5% in April 2017
May 31,2017

The Eight core infrastructure industries have showed 2.5% growth in output for April 2017 over April 2017. Its cumulative output growth had stood at 4.8% in April- March 2016-17.

The Base Year of the Index of Eight Core Industries has been revised from the year 2004-05 to 2011-12 from April 2017. The shift is in line with the new base year of Index of Industrial Production (IIP). The industries covered in the Index of Eight Core are namely Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity. These remain the same as in the 2004-05 series. The revised basket of Eight Core Industries is aligned to the new series of IIP (2011-12) as far as possible. The revised Eight Core Industries have a combined weight of 40.27% in the IIP.

Coal production (weight: 10.33%) declined by 3.8% in April 2017 over April 2016. Its cumulative index increased by 3.2% in April-March 2016-17 over corresponding period of the previous year.

Crude Oil production (weight: 8.98%) declined by 0.6% in April 2017 over April 2016. Its cumulative index declined by 2.5% in April-March 2016-17 over the corresponding period of previous year.

The Natural Gas production (weight: 6.88%) increased by 2.0% in April 2017 over April 2016. Its cumulative index declined by 1.0% in April-March 2016-17 over the corresponding period of previous year.

Petroleum Refinery production (weight: 28.04%) increased by 0.2% in April 2017 over April 2016. Its cumulative index increased by 4.9% in April-March 2016-17 over the corresponding period of previous year.

Fertilizer production (weight: 2.63%) increased by 6.2% in April 2017 over April 2016. Its cumulative index increased by 0.2% in April-March 2016-17 over the corresponding period of previous year.

Steel production (weight: 17.92%) increased by 9.3% in April 2017 over April 2016. Its cumulative index increased by 10.7% in April-March 2016-17 over the corresponding period of previous year.

Cement production (weight: 5.37%) declined by 3.7% in April 2017 over April 2016. Its cumulative index declined by 1.2% in April-March 2016-17 over the corresponding period of previous year.

Electricity generation (weight: 19.85%) increased by 4.7% in April 2017 over April 2016. Its cumulative index increased by 5.9% in April-March 2016-17 over the corresponding period of previous year.

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Asian Development Bank (ADB) and Punjab National Bank (PNB) sign $100 million loan to finance Solar Rooftop projects
May 31,2017

The Asian Development Bank (ADB) and the Punjab National Bank (PNB) yesterday signed a $100 million loan n++ to be guaranteed by the Government of India n++ that will finance large solar rooftop systems on industrial and commercial buildings throughout India. The PNB will use the ADB funds to make further loans to various developers and end users to install rooftop solar systems. This is the first tranche loan of the $500 million multi tranche finance facility Solar Rooftop Investment Program (SRIP) approved by ADB in 2016. The financing includes $330 million from ADBs ordinary capital resources and $170 million from the multi donor Clean Technology Fund (CTF) administered by ADB. The first tranche loan of $100 million would be financed entirely from the CTF. n++With a sharp drop in the price of solar panels, India has a huge potential to expand its use of solar rooftop technologies,n++ said Mr. Kenichi Yokoyama, ADB Country Director in India who signed the loan on behalf of ADB. n++The program will contribute to the governments plans to increase solar power generation capacity, and also help India meet the carbon emission reduction target in line with its commitment at the recent global climate change agreement.n++ Indias solar rooftop market is expanding fast with an estimated total capacity potential of 124GW.

n++The project is aligned with the goal set by Government of India to increase the countrys solar rooftop capacity by 40 GW by 2022, and would also contribute to Governments efforts to promote solar energy solutions as affordable and sustainable energy sources,n++ said Mr. Raj Kumar, Joint Secretary to the Government of India, Department of Economic Affairs, Ministry of Finance, who signed the Guarantee Agreement for Government of India. The loan agreement was signed by Mr. H.K. Parikh, General Manager on behalf of PNB.

The entire Solar Rooftop Investment Program will cost $1 billion, inclusive of ADB $500 million funding, and the projects financed under the program will install solar rooftop system of around 1 GW capacity. This will contribute to the climate change goal of reducing greenhouse gas emissions by about 11 million tons of carbon dioxide equivalent over the typical 25-year lifetime of rooftop solar systems.

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Central Board of Direct Taxes (CBDT) extends the due date for furnishing Statement of Financial Transaction (SFT) to 30th June 2017
May 31,2017

Section 285BA of the Income-tax Act, 1961 requires furnishing of a statement of financial transaction (SFT) for transactions prescribed under Rule 114E of the Income-tax Rules, 1962. The due date for filing such SFT in Form 61A in respect of specified financial transactions registered or recorded during Financial Year 2016-17 is 31st May 2017.

Representations were received in the Central Board of Direct Taxes (CBDT) requesting for extension of the date of filing of the said SFT on account of the teething problems and the volume of data to be compiled. In view of these representations and in order to remove inconvenience and to facilitate ease of compliance, the CBDT, in exercise of powers conferred under section 119 of the Act, have extended the due date of furnishing of the SFT under Rule 114E (5) of the IT Rules, read with sub-section (1) of section 285BA of the Income Tax Act, 1961 in respect of specified financial transactions registered or recorded during Financial Year 2016-17, from 31st May 2017 to 30th June 2017.

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Online APAR for Indian Trade Service SPARROW-ITS Launched
May 31,2017

In accordance with the Government of Indias policy to introduce online Annual Performance Appraisal Report (APAR) for Group A services, Smt. Rita Teotia, Commerce Secretary launched the SPARROW-ITS (Smart Performance Appraisal Report Recording Online Window), to enable the Indian Trade Service (ITS) officers to fill their APAR online for the year 2016-17 onwards.

The APARs would be generated and transmitted online to the concerned officers for filling up of the self appraisal. The officer can then submit the self appraisal online through Digitally Signed Signature (DSC) or through E-sign. The subsequent processes of reporting and reviewing would also be done online by the Reporting and Reviewing Officer by using DSC or E-sign. The timelines have been drawn up for each stage of the process. The entire process of filling up of APAR would have to be completed by 31st December and no remarks can be added after that date.

The very idea of switch over from manual to online system is to ensure ready access of APAR dossier by the authorized users, preventing loss of APARs in transition, address the issues of ante-dating, remarks recorded by the Reporting Authorities without dates, etc. Above all, it brings in transparency into the APAR management system. This would, in turn, ensure that the APAR dossiers are readily available for promotions at various levels which used to get delayed for want of updated APARs. This is another step towards Digital India in the government, where various administrative processes are being moved to IT platform leading to transparency and ease of administration. The 150 officers of ITS would, thus, get benefited by timely promotions and all other benefits dependent upon the evaluation of their APARs.

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Moodys: Improving global growth outlook for 2017 appears sustainable as risks abate
May 31,2017

The improving outlook for global growth in 2017 appears to be sustainable as some of the biggest risks to advanced economies have subsided and emerging markets maintain their expansion, says Moodys Investors Service in a new report.

Moodys expects G20 economies, which account for 78% of the global economy, to collectively grow at an annual rate of 3.1% in 2017 and 2018, compared with growth of 2.6% in 2016. The US will rebound after a soft first quarter and its economy will expand around 2.4% this year, putting it among the fastest growing advanced economies.

Overall, global growth is looking increasingly sustainable with economic data surprising to the upside in a number of emerging market countries, said Madhavi Bokil, a Vice President and Senior Analyst at Moodys. The current momentum should continue, barring any negative surprises.

The risk to global trade and economic growth from the introduction of protectionist policies in the US appears to have receded for now and there has been a significant softening of the US administrations stance on what should be considered free and fair trade.

In the US, an overall increase in housing and business capital investment suggest that the first quarter slowdown will be temporary. Personal consumption, which grew 0.3% in the first quarter, will improve as the labor market continues to strengthen. Business sentiment, financial conditions and other economic indicators have all remained strong since the start of the year.

Economic momentum has undoubtedly picked up, especially in emerging market countries, said Elena Duggar, an Associate Managing Director at Moodys. But strength is likely to be held down by changing demographics, muted investment, low productivity growth and stagnant real wage growth.

Moreover, the lack of fiscal buffers and limited scope for effective monetary accommodation in the event of shocks remain a concern even as growth strengthens.

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Chola MS General Insurance Raises INR 100cr of Tier 2 Capital to Fuel Growth in Fiscal 2017-18
May 31,2017

Cholamandalam MS General Insurance Company Limited has announced the successful private placement of 1,000 Unsecured, Subordinated, Fully Paid-up, Listed, Redeemable, Non-Convertible Debentures having face value of Rs. 10,00,000 each (the NCDs), at par, aggregating to Rs. 100 crores. The coupon rate is 8.75% per annum and a maturity period of 10 years with a call option after 5 years.

Mr. S S Gopalarathnam, MD & CEO, Chola MS General Insurance said, We have augmented our capital base by issuing subordinated debt, post the recent measures announced by the Insurance Regulatory and Development Authority of India (IRDAI), allowing alternative forms of capital. The funds raised through this issue would be used to fuel and facilitate business growth by further strengthening the Companys solvency. During Fiscal 2017-18, Chola MS is poised to grow its Gross Written Premium (GWP) to INR 4,500 cr - a growth of 40% over the last fiscal.

The NCDs have been assigned a credit rating AA+ (Outlook: Stable) by rating agencies CRISIL and ICRA.

The NCDs will be listed in National Stock Exchange of India Limited.

The issuance of these NCDs are in accordance with the provisions of inter alia the Insurance Regulatory and Development Authority of India (Other Forms of Capital) Regulations, 2015, as amended from time to time, which were notified in November 2015 whereby Indian insurers were allowed to raise additional capital through subordinated debt or preference shares

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Moodys downgrades RCOM to Caa1; ratings on review for further downgrade
May 31,2017

Moodys Investors Service has downgraded Reliance Communications (RCOM) corporate family rating and senior secured bond rating to Caa1 from B2.

At the same time, the ratings are under review for further downgrade.


The downgrade reflects RCOMs weak operating performance, high leverage and fragile liquidity position. The companys reported EBITDA has fallen 29% year-over-year, evidencing its weak market position and contracting subscriber base, says Annalisa DiChiara, a Moodys Vice President and Senior Credit Officer.

On 27 May, RCOM reported an 11% YoY decline in revenues and a 29% contraction of EBITDA to INR53.9 billion ($830 million) for full year ending 31 March 2017 from INR76.3 billion ($1.2 billion) a year ago, while its EBITDA margin dropped to 27.0% from 34.2% over the same period. RCOMs weak operating results reflect the intense state of competition, driven in turn by the free services offered by Reliance Infocomm Limited (RJio) from mid-September 2016 through 1 April 2017.

RCOMs liquidity position is fragile. RCOM has around INR 230 billion short-term debt and current long term debt maturities through 31 March 2018. In addition, the company disclosed in its financial statements that it is still awaiting formal confirmation from lenders for waivers of certain loan covenants so the loan amount continues to be classified as a non-current liability. We believe failure to obtain could exacerbate near-term liquidity pressures, adds DiChiara.

Historically, the company has relied on short-term debt and covenant waivers from its banking relationships.

Should the waivers not be received, this development could have significant implications for the holders of RCOMs $300 million bond, as there are cross-payments and cross-defaults for any acceleration, in each case by the issuer or any restricted subsidiary, with respect to debt in aggregate of $10 million.

Separately, the company announced that it is current on interest payments as related to its $300 million bond.

Meanwhile, as of 31 March 2017, RCOM reported cash and cash equivalents of INR10.2 billion. Together with Moodys expectation of the companys limited ability to generate free cash flow, Moodys believes this will be insufficient to cover upcoming debt maturities, absent waivers from its lenders while the company pursues the completion of its corporate restructuring.

The restructuring includes the sale of its telecommunications tower assets and the de-merger of its core wireless operations which it will merge with Aircel Limited (unrated) in a new joint venture (MergerCo).

At the same time, RCOMs consolidated debt levels continued to rise through year-end. The company reported total debt of INR457 billion at 31 March 2017, resulting in reported debt/EBITDA of 8.5x. Including its reported INR 33.2 billion of deferred payment liabilities, leverage increases further to over 9.0x.

Given the weak operating outlook and high competitive intensity of the Indian mobile sector, there is no scope for RCOM to delever, absent the successful execution of its corporate restructuring.

RCOM announced on 27 May that it will transfer around INR140 billion of balance-sheet debt and INR60 billion of deferred spectrum liabilities to MergedCo and repay an additional INR110 billion of balance-sheet debt with the proceeds from the sale of its tower assets.

However, even assuming these transactions are completed as planned, post restructuring, Moodys estimates that RCOM will have over $3.0 billion of debt remaining on its balance sheet. This total includes both RCOMs $300 million senior secured bond and a $350 million senior secured bond issued by its 100%-owned subsidiary, GCX Limited.

But GCX, which Moodys estimates will account for a significant portion of revenues post restructuring (based on Moodys estimates), is not a restricted subsidiary under RCOMs $300 million bond indenture, and therefore RCOM has no recourse to those assets or cash flows. GCX is ring-fenced from creditors at RCOM, with dividend payments currently representing the only form of cash flow stream from GCX.

GCX is able to pay dividends so long as its leverage remains below 3.75x and interest coverage above 2.25x. In addition, GCX can incur additional indebtedness under its indenture, including drawing down on its $30 million revolving credit facility.

Depending on the outcome of the restructuring process and the lenders consent process, Moodys will also further evaluate the RCOMs business risk position, business strategy, financial policies, liquidity position, and the effect these have on its credit profile. The cash flow-generating capabilities of some of RCOMs remaining businesses n++ namely the enterprise and fiber optic business segments n++ remain unclear.

Moodys review will focus on: (1) timely progress in RCOMs announced transactions, including regulatory approvals and processes related to lender and bondholder consents, as required, for the de-merger of the wireless business and the sale of its tower assets; (2) assessing the credit quality and financial strength of the remaining businesses, particularly as related to the companys enterprise and fiber optic business; and (3) assessing the effects of the proposed restructuring on the collateral package for RCOMs USD bondholders as well as the cash flow prioritization relative to other debt and cash obligations.

Further downward pressure on the ratings is possible if the company fails to address its liquidity position within the next 3 months, or fails to provide a clear refinancing plan for pending maturities over the next 12-15 months.

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Moodys: Global luxury retailers earnings growth could double in 2017 but wont return to double-digit levels soon
May 31,2017

Global luxury retailers earnings growth could nearly double in 2017 (4% in 2016 to 7% in 2017), but is unlikely to reach the double-digit levels achieved in the halcyon 2010-13 period, says Moodys Investors Service in a report published today.

Moodys report looked at a sample of 11 luxury product manufacturers comparing a broad range of financial metrics including revenue growth, EBITDA margin, share buybacks and dividends.

A return to double-digit growth for the global luxury retail segment is unlikely until at least 2020 as the Chinese consumer boom has slowed, value-conscious consumers are now less likely to stand for price hikes, and competition from other sectors like travel and fine dining remains elevated, says Vincent Gusdorf, Vice President -- Senior Analyst at Moodys.

The overall credit quality of the luxury industry should improve slightly in 2017. Shiseido Company, Limiteds (A2 stable) Moodys-adjusted debt/EBITDA Moodys-adjusted will strengthen on the back of higher earnings and conservative financial policies. SMCP Group (B1 stable), which owns the Sandro, Maje and Claudie Pierlot brands, will see the most marked improvement in credit metric terms on the back of new store openings and high like-for-like growth.

US firms Tiffany & Co. (Baa2 stable), and Ralph Lauren Corporation (A2 stable) will cut capex and shareholder remuneration to maintain stable leverage in the face of a slowdown in earnings growth into 2018 as a result of a strong dollar, department store deterioration and operating issues. On the other hand, The Estn++e Lauder Companies Inc. (A2 stable) should perform well thanks to its good international diversification and its portfolio of well-recognized brands.

Other factors facing the luxury goods sector include rising competition, which is pushing some to improve productivity. Many luxury groups also intend to reduce their reliance on department stores, particularly in the US where companies such as Macys, Inc (Baa3, stable), Kohls Corporation (Baa2, stable), or Nordstrom, Inc. (Baa1, stable), have been hard-hit by changing shopping trends, lower mall traffic, and competition from online and off-price retailers.

Companies are also now putting the brakes on new store openings, with some choosing to instead focus on improving the productivity of existing stores. Others, such as Ralph Lauren Corporation (A2, stable) are reducing their store portfolio. This decline in openings is credit positive as it reduces fixed costs such as rent, improves the financial flexibility of luxury companies and bolsters cash flow generation.

Luxury companies will also look to cut share buybacks when necessary to preserve their credit ratios, but payout ratios will remain high. Estn++e Lauder, which has a history of large and frequent share buybacks, will likely remain one of the most shareholder-friendly companies in the sector.

M&A will continue to constrain ratings as luxury companies are now considering large acquisitions. The companies in Moodys sample will spend $7 billion on acquisitions in 2017, compared to $2 billion in 2016. Coach, Inc.s (Baa2, ratings under review) planned purchase of Kate Spade & Company for $2.4 billion, largely using debt, will be credit negative. More positively, multi-brand groups may sell underperforming subsidiaries and improve their credit ratios.

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