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Sat, 27th May 2017

Anirudh Sethi Report

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Archives of “Corporation” Tag

Trump To Sign Executive Orders On Corporate Inversions and Dodd-Frank Regulations

As pressure mounts on Trump to post some victories within the totally arbitrary window of the “First 100 Days” of his administration, the President is expected to join Treasury Secretary Steven Mnuchin later this afternoon to sign a combination of executive orders and memos targeting the reduction of tax regulations and certain components of Dodd-Frank. 

Per a statement from the White House, one of Trump’s new executive orders will seek to undo tax rules put in place in the last year of Obama’s presidency that were designed to limit so-called ‘corporate inversions’ which allows U.S. traded companies to recognize income in lower cost countries like Ireland.  Per Bloomberg

Under President Barack Obama, Treasury sought to rein in U.S. companies’ attempts to shift their profit offshore by proposing rules that would curb so-called “earnings stripping” and inversions — mergers in which U.S. companies transfer their tax address overseas to low-tax countries like Ireland to cut their tax bills.

 Some of those rules, first proposed in April 2016, sought to restrict lending among subsidiaries of the same corporate parent, a technique that can create income in low-tax countries and tax-deductible interest payments in the U.S. The proposed rules met a barrage of criticism from corporations and tax lawyers, who complained that they went too far by banning common, everyday cash-management practices that have nothing to do with tax avoidance.

 Amid the criticism, Treasury last October softened the proposed rules to allow cash pooling, a common corporate money-management technique in which excess cash in subsidiaries is swept daily into a single pool. It also delayed a related proposal, which would require companies to extensively document their related-party lending, until Jan. 1, 2018.

The Last Two Times After The Government Reported Data Like This, Stocks Crashed

Wall Street claims surge in stocks is based on rising corporate earnings.

So, let’s see. The Commerce Department’s Bureau of Economic Analysis released its third estimate of fourth quarter 2016 GDP and corporate profits today. This second revision of its first estimate of January 27 contains more data and is considered a more accurate approximation of what happened in the vast, devilishly hard-to-quantify US economy.

In terms of GDP, the fourth quarter was revised up slightly, but there were adjustments for prior quarters, and overall GDP growth for the year 2016 remained at a miserably low 1.6%. We’ve come to call this the “stall speed.” It’s difficult for the US economy to stay aloft at this slow speed. As Q4 gutted any hopes for a strong finish, GDP growth in 2016 matched the worst year since the Great Recession.

And corporate profits, despite a stock market that has been surging for years, are even worse. A lot worse. They’ve declined for years. In fact, they declined for years during the prior two stock market bubbles, the dotcom bubble and the pre-Financial-Crisis bubble. Both ended in crashes.

However, Wall Street remains assiduously silent on this.

India : 32 listed companies paid Rs 7,100 cr royalty in FY16

As many as 32 multinational companies listed on BSE paid royalties worth Rs 7,100 crore to their global parents in 2015-16, a surge of around 13 per cent from the preceding fiscal, says a report. Proxy advisory firm IiAS said payout amount translates to around 21 per cent of the 32 companies pre-royalty pre-tax profits.

In contrast, pre-royalty pre-tax profits have grown at a compounded annual growth rate (CAGR) of 9.6 per cent and net sales have grown by 8.7 per cent. In 2015-16, aggregate royalty payments of 32 MNCs in the BSE 500 aggregated Rs 7,100 crore, up from Rs 6,300 crore in 2014-15.

A total of five companies — Maruti Suzuki India Ltd, Hindustan Unilever Ltd, ABB Ltd, Nestle India Ltd and Bosch –paid royalty of Rs 5,540 crore in 2015-16, which is 78 per cent of the royalty paid by the 32 MNCs. The report said that trend of increasing royalty payouts without commensurate improvement in revenues and profits continues.

“Companies must provide greater clarity regarding the basis on which royalty is paid out, given that it has outpaced both sales and profits in the past five years,” IiAS said.

Hit by rating downgrades, India Inc’s debt profile plunges

At ten a day since April last year it’s been raining downgrades for India Inc. Downgrades have now outnumbered upgrades every month for the past 18 months, save in January this year. Moreover, at 112, the number of companies that saw their ratings rise in February is the lowest since May 2016. After Lodha Developers, Reliance Comm and Tata Steel in January, IFCI and IDBI Bank saw their ratings drop last month.

Corporate India’s debt profile isn’t getting better and, in fact, maybe worsening. Sample this: More than R7 lakh crore of debt is with companies that have had an interest cover (PBIT/interest) of less than one for 12 straight quarters.

That’s roughly a fifth of all bank loans to the industry. For instance, Punj Lloyd and Kesoram Industries together owe lenders over R12,000 crore — the interest cover (PBIT/interest) at both companies has been less than one for 12 straight quarters now.

As Credit Suisse points out, more than a third of corporate loans remain on the books of chronically stressed companies. And at the end of the December 2016 quarter, 41% of the total borrowings belonged to companies with an interest coverage ratio of less than one. Unfortunately, these firms aren’t doing too well — their ebitda, or earnings before interest, tax, depreciation and amortisation, fell 10% in Q3FY17.

Again, as Credit Suisse points out, three ADAG Group companies — RPower, RInfra and RCom — have a gross debt of close to R80,000 crore but each of them reported an ebit (earnings before interest and tax) loss in the December 2016 quarter.

Prosecutors seek arrest warrant for Samsung chief Lee Jae-yong

Special prosecutors in Seoul on Monday requested an arrest warrant for the de facto head of Samsung, the country’s largest company, as a corruption scandal that toppled president Park Geun-hye ensnared another powerful South Korean figure.

Lee Jae-yong, vice chairman of Samsung Electronics and heir to the company, is wanted on charges of bribery, according to prosecutors who grilled the country’s top executive during a marathon 22-hour interrogation late last week.

Samsung were unable to comment immediately. However, the development will likely be a stunning blow to the company as its attempts to solidify the succession of Mr Lee as chief and to reform its corporate governance structure.

Enforcement Directorate to probe Mistry’s allegations against Tata Sons

The Enforcement Directorate will look into Tata Sons’ ousted chairman’s allegations related to the mismanagement of the group’s aviation ventures, India Today reported on Saturday citing a source.

Cyrus Mistry was removed as chairman of the 148-year-old Tata group this week in a move that stunned corporate India. Mistry has since accused his predecessor Ratan Tata of thwarting his attempts to restructure the $104 billion Indian conglomerate.

In a leaked letter to the Tata board, Mistry said he was opposed to Tata’s aviation partnerships with Malaysia’s AirAsia Bhd and Singapore Airlines.

In the case of Air Asia, a forensic investigation had found “fraudulent transactions” of 220 million rupees ($3.29 million) involving “non-existent parties”, Mistry alleged in his letter.

That allegation had prepared the ground for an “examination” of the case, the India Today report said, citing an unnamed official at the Enforcement Directorate.

Officials at the agency were not immediately available to comment. Tata Sons said it was unaware of any such probe. An AirAsia India spokeswoman said she did not have an immediate comment.

An investigation by the agency, if confirmed, would come at a time when India’s capital markets regulator has already started looking into Mistry’s allegations related to violations of corporate governance rules at Tata.

Cyrus Mistry not cut out for the job; did not display leadership expected of chairman: Tata Group insiders

Was Cyrus Mistry removed from the post of Tata group chairman because of his inability to display the leadership expected of him? If a report on ET Now is to be believed, then Cyrus Mistry was not “cut out for the job”. Sources in Tata Group have told the channel that Cyrus Mistry was sacked because he was unable to make the cut as a leader. “Mistry did not display the leadership expected from the Chairman of Tata Sons. He was decent and hardworking, but was not cut out for the job,” sources have told the channel.

It appears that Mistry was given the ‘opportunity’ to resign, but he chose not to. “There is no particular reason for the decision to remove Mistry, the accretion of things led to it. There is no gentle way of removing a Chairman, it had to be done,” sources said, adding that the Tata Sons Board felt that Mistry was not what the group needs as a leader. Now, Mistry is expected to resign from the post of Chairman of several group companies as well.

Cyrus Mistry says he was reduced to a “lame-duck” chairman: Full text of his letter to the Tata Sons Board

In a sharp letter, Cyrus Mistry, the ousted chairman of Tata Group, has blamed the directors of the conglomerate of not giving him a chance to defend himself and wrongly dismissing him. Mistry has also warned that the group may face $18 billion in write downs. Mistry has blamed five unprofitable businesses that he inherited, for the possible write downs. “I was shocked beyond words at the happenings at the board meeting of October 24, 2016. Apart from the invalidity and illegality of the business that was conducted, I have to say that the Board of Directors has not covered itself with glory. To “replace” your Chairman without so much as a word of explanation and without affording him an opportunity of defending himself in a summary manner must be unique in the annals of corporate history. The suddenness of the action, and the lack of explanation has led to all manner of speculation and has done my reputation and the reputation of the Tata Group immeasurable harm,” Mistry writes.

Mistry has said that as the group chairman, he tried to turn things around – be it from a Nano to an ultra-mega-power plant. Mistry has hit out at Ratan Tata, his predecessor, for interference. In an e-mail letter Mistry has lamented that Ratan Tata’s interference had increased to the extent that he (Mistry) was reduced to being a ‘lame-duck’ chairman.

Cyrus Mistry removed as chairman of Tata group

India’s powerful salt-to-steel conglomerate, the Tata Group, said Monday it had replaced its chairman, Cyrus Mistry, amid growing investor concern about the uninspiring financial performance since he took over less than four years ago.

In a brief statement that sent shockwaves through India’s business circles, the normally staid conglomerate said the board was temporarily reinstating former chairman Ratan Tata, to serve as interim chairman

The company also said it has already established a search committee to identify a long-term successor for Mr Mistry, a process it said would be completed within the next four months.

Chinese firms are moving rapidly to announce debt restructuring plans

Reuters with a piece on new government guidelines released Monday and the response from firms to restructure debt

  • Policymakers want to rein in corporate debt (Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. )
  • China Construction Bank Corp (CCB), the nations’ second-largest lender by assets, has been reported in two deals to help big, debt-laden state companies in as many days, and other Big Four banks are expected to follow soon.