Biggest ever acquisition involving the transfer of RBI’s 59.7% stake in SBI-

By Vipin Agnihotri

The Indian government is all set to promulgate an ordinance to close the biggest ever acquisition involving the transfer of Reserve Bank of India's 59.7% stake in State Bank of India (SBI) to the Centre in a deal worth nearly Rs 40,000 crore.

Sources have told The India Street that the finance ministry was expected to seek the Cabinet's approval over the next couple of weeks to ensure that the Centre hands over the cheque to RBI on June 29. It is worth mentioning in this regard that the RBI had offered to sell its stake in all banks and financial institutions to the Centre in a bid to avoid conflict of interest in its role as a regulator as well as owner of some entities.

”Though the Cabinet had approved the proposal in February, the government needs to wait for an amendment to the SBI Act to carry forward the transaction,” pointed out Hiten Tejwani, noted economist. Theoretically speaking, a bill to amend the law is pending with a parliamentary standing committee and the finance ministry intended to insert a clause enabling it to purchase RBI's stake when it came back to the House. But in the absence of the standing committee report, the finance ministry is pushing for an ordinance to close the transaction.

According to experts, the government will value the 31.43 crore SBI shares, which have a face value of Rs 100 each, held by RBI at the average closing price for six months. "It is essentially cash management for 40-45 days since the amount that the government pays to RBI will come back to it as surplus. The transaction has already been factored in the borrowing programme," said a government official while talking to The India Street.

In addition, the government had frontloaded few of its borrowing routine and what is also assisting the Centre is the fact that there are no big payments that are due in July or early August that could have put pressure on Centre's liquidity position. But the chances of some bills raised by other government agencies are also not being ruled out since the government would want to have sufficient cash with itself.

Fact remains that it was earlier toying with the idea of issuing bonds to RBI, which would have been redeemed over 15-20 years. The proposal was, though, junked as it was felt that the exercise might be cumbersome.

If one takes into account the stake purchase plan that has been finalized, the government will issue a cheque on June 29, 2007-a day before RBI closes its annual books of accounts. Normally, RBI transfers the surplus at the end of the financial year (June 30 in its case) during the first half of August and the amount that it received from the government for selling its stake in SBI will come back to the Centre's kitty.

DLF to invest a third of IPO proceeds in land

Mumbai, India: DLF Ltd has said it would invest Rs 3,500 crore - roughly a third of its planned initial public offering (IPO) - in building up its land reserves. This is significantly lower than its earlier plan of investing Rs 6,500 crore for the purpose.

Announcing its plans here today, DLF said it hoped to raise Rs 9,625 crore through a public issue of 1.75 crore shares in the price band of Rs 500-550 between June 11 and 14.

The new shares on offer will constitute 10.27 per cent of DLF’s post-sale capital. The share sale will give DLF a market value of as much as $24 billion, more than double Unitech’s, India’s biggest property developer.

The real estate major added that it can develop up to 575 million sq ft of real estate space on 10,255 acres (4,150 hectares) of land that it owns or has rights to in 31 cities. The company currently has 44 million sq feet of land under development.

Over half of its land (nearly 5,269 acres) is located in the National Capital Region, 2,708 acres in other major cities and 2,278 acres in the rest of the country.

The company said its current land reserves are sufficient for its planned developments over the next 10 years and provide it with a major competitive advantage, as well as protection against land price inflation.

“We aim to build up land reserves at competitive prices at strategic locations in the country, to gain from them during the upside in the economy,” said DLF Vice-Chairman Rajiv Singh.

While DLF and its subsidiaries own 11.3 per cent of the land reserves, they have sole development rights for 44.6 per cent of the total.

They have agreements to purchase or letters of acceptance for 35.9 per cent of the land, while the rest are joint developments with partners, the company said.

DLF filed its first prospectus in May 2006, which it had to withdraw on account of regulatory objections in August, following complaints by minority shareholders. The company filed a renewed prospectus in January this year. The Delhi High Court recently cleared the issue.

DLF will foray into newer areas in the future, including airport management, financial services, asset management, leisure entertainment and hospital properties, among others.

“We may foray into newer areas if good opportunities are available at any point of time. We can also tie up with foreign partners for the ventures,” Singh said.

DLF is promoted by billionaire Kushal Pal Singh, whose wealth doubled last year to $10 billion, according to Forbes. Singh, 75, a former Indian Army officer, bought land in Gurgaon, 17 miles (27 km) south of central New Delhi, in the early 1980s.

He developed Gurgaon as a significant suburb of the national capital, carving out residential plots and condominiums and commercial buildings that house offices and retail outlets.

Merrill Lynch and Kotak Mahindra Capital will manage the IPO, and Citigroup Inc, ICICI Securities, Lehman Brothers Securities, UBS AG, Deutsche Equities India and SBI Capital Markets will also be the sale arrangers.

Source: BS Reporter.