A swap designed to transfer the credit Risk of fixed income securities between parties
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Tuesday, August 4, 2009
CDS
A swap designed to transfer the credit Risk of fixed income securities between parties
A credit default swap (CDS) is a contract between two parties where a protection buyer pays a premium to the protection seller in exchange for a payment if a credit event occurs to a reference entity.
A credit default swap (CDS) is a swap contract in which the buyer of the CDS makes a series of payments to the seller and, in exchange, receives a payoff if a credit instrument -- typically a bond or loan -- goes into default (fails to pay).
CDS are typically 5 year contracts, although 3, 7, and 10 year contracts are also traded.
Monday, July 27, 2009
Currency Carry Trade
A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate.
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For Further reading Click Here
Currency Carry Trade
A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage used.
Take example of a "yen carry trade": a trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into INR Rupees and buys a bond for the equivalent amount. Let's assume that the bond pays 6.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 6.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then he can stand to make a profit of 65%.
The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the INR Rupees were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately.
Take example of a "yen carry trade": a trader borrows 1,000 Japanese yen from a Japanese bank, converts the funds into INR Rupees and buys a bond for the equivalent amount. Let's assume that the bond pays 6.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 6.5% as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then he can stand to make a profit of 65%.
The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the INR Rupees were to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless the position is hedged appropriately.
Sunday, July 26, 2009
Money Market
What Does Money Market Mean?
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.
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A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year.
For Further reading Click Here
Money Market
What Does Money Market Mean?
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, RBI Treasury bills, commercial paper, municipal notes, and repurchase agreements (repos).
The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.
A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Money market securities consist of negotiable certificates of deposit (CDs), bankers acceptances, RBI Treasury bills, commercial paper, municipal notes, and repurchase agreements (repos).
The money market is used by a wide array of participants, from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities, but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper.
Tuesday, April 14, 2009
Special Purpose Vehicle (SPV)
What is an SPV?
The acronym stands for special purpose vehicle. The word vehicle can be interchanged with market entity. In the US, the term used is special purpose entity (SPE). The name SPV is given to an entity which is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful purpose. No SPV can be formed for an unlawful purpose, or for undertaking activities which are contrary to the provisions of law or public policy. An SPV is, primarily, a business association of persons or entities eligible to participate in the association. According to Joy Jain of PricewaterhouseCoopers, an SPV is mainly formed to raise funds by collateralising future receivables.
Is there a difference between a special purpose vehicle and a company?
SPVs are mostly formed to raise funds from the market. Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act. Like a company, the SPV is an artificial person. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV. The SPV has an existence of its own in the eyes of law. It can sue and be sued in its name. The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the companies and individuals sponsoring the entity. An SPV can also be a partnership firm. This, however, is unusual.
distinguished from an SPV, may be called a general purpose vehicle. A company may do many things which are mentioned in the memorandum of association (MoA) or permitted by the Companies Act. An SPV may also do the same, but its scope of operation is limited and focused. If it is not so, the SPV had better be called a company. The MoA is quite narrow in the case of an SPV. This is primarily to provide comfort to lenders who are concerned about their investment.
How is an SPV established?
Like a company, an SPV must have promoter(s) or sponsor(s). Usually, a sponsoring corporation hives off assets or activities from the rest of the company into an SPV. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company, hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPV will be subject to fewer risks and thus provide greater comfort to the lenders. What is important here is the distance between the sponsoring company and the SPV. In the absence of adequate distance between the sponsor and the new entity, the later will not be an SPV but only a subsidiary company.
A good SPV should be able to stand on its feet, independent of the sponsoring company. Unfortunately, this does not happen in practice.
What are the advantages of setting up an SPV?
The biggest advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation. The SPV also allows securitisation of assets without disturbing the managerial relationship. Under the arrangement, any predictable income stream generated by secure assets can be securitised
Will the SPV help in raising funds for the infrastructure sector?
The funds requirement for this sector are huge. There are different organisations, like the Infrastructure Development Finance Company (IDFC), Power Finance Corporation (PFC), Indian Rail Finance Corporation (IRFC) etc., which are engaged in raising funds for development of infrastructure sector projects for the sectors they are involved in. The proposed SPV, which is likely to be a government company, will add to the availability of long-term funds for infrastructure sector projects.
The acronym stands for special purpose vehicle. The word vehicle can be interchanged with market entity. In the US, the term used is special purpose entity (SPE). The name SPV is given to an entity which is formed for a single, well-defined and narrow purpose. An SPV can be formed for any lawful purpose. No SPV can be formed for an unlawful purpose, or for undertaking activities which are contrary to the provisions of law or public policy. An SPV is, primarily, a business association of persons or entities eligible to participate in the association. According to Joy Jain of PricewaterhouseCoopers, an SPV is mainly formed to raise funds by collateralising future receivables.
Is there a difference between a special purpose vehicle and a company?
SPVs are mostly formed to raise funds from the market. Technically, an SPV is a company. It has to follow the rules of formation of a company laid down in the Companies Act. Like a company, the SPV is an artificial person. It has all the attributes of a legal person. It is independent of members subscribing to the shares of the SPV. The SPV has an existence of its own in the eyes of law. It can sue and be sued in its name. The SPV has to adhere to all the regulations laid down in the Companies Act. Members of an SPV are mostly the companies and individuals sponsoring the entity. An SPV can also be a partnership firm. This, however, is unusual.
distinguished from an SPV, may be called a general purpose vehicle. A company may do many things which are mentioned in the memorandum of association (MoA) or permitted by the Companies Act. An SPV may also do the same, but its scope of operation is limited and focused. If it is not so, the SPV had better be called a company. The MoA is quite narrow in the case of an SPV. This is primarily to provide comfort to lenders who are concerned about their investment.
How is an SPV established?
Like a company, an SPV must have promoter(s) or sponsor(s). Usually, a sponsoring corporation hives off assets or activities from the rest of the company into an SPV. This isolation of assets is important for providing comfort to investors. The assets or activities are distanced from the parent company, hence the performance of the new entity will not be affected by the ups and downs of the originating entity. The SPV will be subject to fewer risks and thus provide greater comfort to the lenders. What is important here is the distance between the sponsoring company and the SPV. In the absence of adequate distance between the sponsor and the new entity, the later will not be an SPV but only a subsidiary company.
A good SPV should be able to stand on its feet, independent of the sponsoring company. Unfortunately, this does not happen in practice.
What are the advantages of setting up an SPV?
The biggest advantage is that it helps in separating the risk and freeing up the capital. As a result, the SPV and the sponsoring company are protected against risks like insolvency, which may arise during the course of operation. The SPV also allows securitisation of assets without disturbing the managerial relationship. Under the arrangement, any predictable income stream generated by secure assets can be securitised
Will the SPV help in raising funds for the infrastructure sector?
The funds requirement for this sector are huge. There are different organisations, like the Infrastructure Development Finance Company (IDFC), Power Finance Corporation (PFC), Indian Rail Finance Corporation (IRFC) etc., which are engaged in raising funds for development of infrastructure sector projects for the sectors they are involved in. The proposed SPV, which is likely to be a government company, will add to the availability of long-term funds for infrastructure sector projects.
Friday, March 27, 2009
Run On The Fund
Run On The Fund
A situation in which a hedge fund faces an increasing amount of redemptions, causing the fund managers to sell positions to meet the withdrawals. A run on the fund can happen for several reasons but is usually the result of poor performance from the hedge fund. If the run on the fund is large enough it could force the fund to close its operations after most investors have taken their money out of the fund.
A situation in which a hedge fund faces an increasing amount of redemptions, causing the fund managers to sell positions to meet the withdrawals. A run on the fund can happen for several reasons but is usually the result of poor performance from the hedge fund. If the run on the fund is large enough it could force the fund to close its operations after most investors have taken their money out of the fund.
Credit Cliff
Credit Cliff
A slang term referring to the compounding of a company's credit deterioration caused by provisions, such as financial covenants, or events that trigger a change in the company's credit rating. These can put pressure on the company's liquidity or its business to a material extent.
A slang term referring to the compounding of a company's credit deterioration caused by provisions, such as financial covenants, or events that trigger a change in the company's credit rating. These can put pressure on the company's liquidity or its business to a material extent.
Silver Thursday
Silver Thursday
A steep fall in the price of silver that occurred on Thursday March 27, 1980. The sharp drop, on Silver Thursday, was triggered by a failed attempt to corner the silver market and it led to massive panic in other commodities.
A steep fall in the price of silver that occurred on Thursday March 27, 1980. The sharp drop, on Silver Thursday, was triggered by a failed attempt to corner the silver market and it led to massive panic in other commodities.
Friday, February 13, 2009
Recessionista
What Does Recessionista Mean?
A person who is able to remain stylish during times of economic hardship. A recessionista can shop on a limited budget and still manage to be up to date on the most current fashions. A recessionista does not let a bad economy, inflation, or a strong recession damage his or her wardrobe and opts to search for sales and shop at thrifty discount stores instead.
The term recessionista derives from a combination of the words recession and fashionista. It is used to make light of a bad situation and demonstrate how people can maintain their lifestyles in times of struggle.
(Investopedia)
A person who is able to remain stylish during times of economic hardship. A recessionista can shop on a limited budget and still manage to be up to date on the most current fashions. A recessionista does not let a bad economy, inflation, or a strong recession damage his or her wardrobe and opts to search for sales and shop at thrifty discount stores instead.
The term recessionista derives from a combination of the words recession and fashionista. It is used to make light of a bad situation and demonstrate how people can maintain their lifestyles in times of struggle.
(Investopedia)
Sunday, January 25, 2009
2 more Satyam directors quit, more may follow
December 29, 2008
Two more directors on Monday resigned from the board of Satyam Computer Services , taking the number to three, following differences over an abortive acquisition deal involving two firms promoted by chairman Ramalinga Raju's family.
The NYSE-listed company on Monday announced the resignation of non-executive director Krishna G Palepu, and non-executive and independent director Vinod K Dham from the board, with effect from Sunday.
On December 25, the board's longest serving member Mangalam Srinivasan had resigned from the board owning moral responsibility for the fiasco over the Maytas acquisitions that raised questions about the role of independent directors and corporate governance issues.
PTI
Two more directors on Monday resigned from the board of Satyam Computer Services , taking the number to three, following differences over an abortive acquisition deal involving two firms promoted by chairman Ramalinga Raju's family.
The NYSE-listed company on Monday announced the resignation of non-executive director Krishna G Palepu, and non-executive and independent director Vinod K Dham from the board, with effect from Sunday.
On December 25, the board's longest serving member Mangalam Srinivasan had resigned from the board owning moral responsibility for the fiasco over the Maytas acquisitions that raised questions about the role of independent directors and corporate governance issues.
PTI
SFIO probe into Satyam deal likely
December 29, 2008
The government said on Tuesday it would refer the controversial $1.6-billion Satyam-Maytas failed deal to the Serious Frauds Investigation Office if the Registrar of Companies detects major irregularities during its investigation into the issue.
"The case is already with the registrar of companies. If the RoC and regional director say that the case is of serious nature, and a serious fraud has been committed, it will be referred to the SFIO," a corporate affairs ministry official said on Monday.
Satyam had abandoned the deal on December 17, a day after it announced acquisitions of two Maytas firms, promoted by the family of company chairman B Ramalinga Raju in the face of stiff protests from investors who charged violation of corporate governance.
Within days, the World Bank also made public an eight-year ban on the company on charges of bribery and wrong business practices.
The ministry has asked the RoC to submit within three weeks reports of the Satyam-Maytas deal and the details involved.
The official, who did not want to be named, said that the issue could also be sent to the Company Law Board, a quasi-judicial body that also looks into the working of companies in the interest of minority shareholders.
For this, the ministry could even waive the condition of a minimum 10 per cent of shareholders required for moving the CLB with complaints. Even if there are lesser number of shareholders approaching the government, the ministry could refer the matter to CLB, he said, adding till now 'no one has filed a complaint'.
Business Standard
The government said on Tuesday it would refer the controversial $1.6-billion Satyam-Maytas failed deal to the Serious Frauds Investigation Office if the Registrar of Companies detects major irregularities during its investigation into the issue.
"The case is already with the registrar of companies. If the RoC and regional director say that the case is of serious nature, and a serious fraud has been committed, it will be referred to the SFIO," a corporate affairs ministry official said on Monday.
Satyam had abandoned the deal on December 17, a day after it announced acquisitions of two Maytas firms, promoted by the family of company chairman B Ramalinga Raju in the face of stiff protests from investors who charged violation of corporate governance.
Within days, the World Bank also made public an eight-year ban on the company on charges of bribery and wrong business practices.
The ministry has asked the RoC to submit within three weeks reports of the Satyam-Maytas deal and the details involved.
The official, who did not want to be named, said that the issue could also be sent to the Company Law Board, a quasi-judicial body that also looks into the working of companies in the interest of minority shareholders.
For this, the ministry could even waive the condition of a minimum 10 per cent of shareholders required for moving the CLB with complaints. Even if there are lesser number of shareholders approaching the government, the ministry could refer the matter to CLB, he said, adding till now 'no one has filed a complaint'.
Business Standard
Srinivasan resigns from Satyam's board
December 26, 2008
An independent director on Satyam Computer's board is understood to have resigned days ahead of a scheduled meeting next week.
When contacted, a Satyam spokesperson declined to comment, while the independent member, Mangalam Srinivasan, could not be reached.
Earlier this month, Satyam announced the acquisition of two companies promoted by the family of its chief B Ramalinga Raju, but called off the deal within hours following investors' dissent over corporate governance issues.
Satyam had two independent directors on its board. Srinivasan is believed to have resigned for being a party to the controversial buyout of the two firms -- Maytas Properties and Maytas Infrastructure -- owned by Ramalinga Raju's sons.
The decision raised the issue of corporate governance and later led to shareholder activism, which forced the proposed deal to be aborted.
Although market sources said the other independent director may resign before or on the day of the board meeting, the same could not be confirmed either from the member or from the company.
PTI
An independent director on Satyam Computer's board is understood to have resigned days ahead of a scheduled meeting next week.
When contacted, a Satyam spokesperson declined to comment, while the independent member, Mangalam Srinivasan, could not be reached.
Earlier this month, Satyam announced the acquisition of two companies promoted by the family of its chief B Ramalinga Raju, but called off the deal within hours following investors' dissent over corporate governance issues.
Satyam had two independent directors on its board. Srinivasan is believed to have resigned for being a party to the controversial buyout of the two firms -- Maytas Properties and Maytas Infrastructure -- owned by Ramalinga Raju's sons.
The decision raised the issue of corporate governance and later led to shareholder activism, which forced the proposed deal to be aborted.
Although market sources said the other independent director may resign before or on the day of the board meeting, the same could not be confirmed either from the member or from the company.
PTI
World Bank bars Satyam for 8 years
December 24, 2008
The World Bank has barred Satyam Computer Services from doing any business with it for the next eight years even as the share prices of India's fourth-largest IT firm tanked 13.5 per cent on rumours that B Ramalinga Raju, founder and chairman, has resigned.
Speculation was also high on news that Wipro Technologies, India's third-largest IT firm, might acquire Satyam, something both companies denied.
Foxnews.com on Tuesday reported that the World Bank ban started in September this year "due to alleged malpractice's including bribery". The news report said the World Bank debarment -- the harshest sanction ever made by the bank since 2004 -- was meted out for 'improper benefit to bank staff' and 'lack of documentation on invoices'.
"The information is true," Sudip Mozumder, a spokesman for the World Bank in New Delhi, told Reuters. Moreover, Robert Van Pulley, the information security official, admitted to the ban during a recent meeting with officials of the Government Accountability Project, a 30-year-old whistle-blowing organisation based in Washington.
When contacted, a Satyam spokesperson said that "the company does not comment on individual clients".
According to reports throughout 2003 to 2008, the World Bank has paid Satyam hundreds of millions of dollars to maintain and manage its software systems across global networks as well as look at back-office operations.
In 2005, the bank's chief information officer, Mohamed Muhsin, was asked to leave after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts. A top-secret investigation led to Muhsin being banned permanently from the bank in January 2007.
Satyam has been in the line of fire since it made an attempt to acquire Maytas Infra and Maytas Properties for $1.6 billion that are partially owned by the promoter family. Within 10 to12 hours of this announcement, the company retracted its decision due to investor outrage.
The World Bank has barred Satyam Computer Services from doing any business with it for the next eight years even as the share prices of India's fourth-largest IT firm tanked 13.5 per cent on rumours that B Ramalinga Raju, founder and chairman, has resigned.
Speculation was also high on news that Wipro Technologies, India's third-largest IT firm, might acquire Satyam, something both companies denied.
Foxnews.com on Tuesday reported that the World Bank ban started in September this year "due to alleged malpractice's including bribery". The news report said the World Bank debarment -- the harshest sanction ever made by the bank since 2004 -- was meted out for 'improper benefit to bank staff' and 'lack of documentation on invoices'.
"The information is true," Sudip Mozumder, a spokesman for the World Bank in New Delhi, told Reuters. Moreover, Robert Van Pulley, the information security official, admitted to the ban during a recent meeting with officials of the Government Accountability Project, a 30-year-old whistle-blowing organisation based in Washington.
When contacted, a Satyam spokesperson said that "the company does not comment on individual clients".
According to reports throughout 2003 to 2008, the World Bank has paid Satyam hundreds of millions of dollars to maintain and manage its software systems across global networks as well as look at back-office operations.
In 2005, the bank's chief information officer, Mohamed Muhsin, was asked to leave after being accused of improperly buying preferential stock options from Satyam, even as he awarded the firm major contracts. A top-secret investigation led to Muhsin being banned permanently from the bank in January 2007.
Satyam has been in the line of fire since it made an attempt to acquire Maytas Infra and Maytas Properties for $1.6 billion that are partially owned by the promoter family. Within 10 to12 hours of this announcement, the company retracted its decision due to investor outrage.
Sebi finds no violation by Satyam
December 24, 2008
The Securities and Exchange Board of India (Sebi) has, prima facie, not found any violation of norms relating to takeover and corporate governance in its preliminary surveillance of the deal involving the acquisition of Maytas Infra by Satyam Computer Services.
Thus, sources close to the development said, there was no need for a formal investigation. Instead, the market regulator would probe the deal under Sections 370 and 372 of the Companies Act.
Therefore, the probe would be limited to the deal between the two listed entities -- Satyam and Maytas Infra -- and not cover the one involving Satyam and unlisted firm Maytas Properties.
Section 370 of the Companies Act deals with loans to companies under the same management. Under this Section, a company could not give loans or any form of guarantee to companies under the same management unless it has been approved by a special board resolution. Section 372 deals with purchase of shares of one company by another.
These purchases, sources said, are governed by certain restrictions imposed by the board of the company at the time of its inception and copies of this document are submitted to the market regulator and the Department of Company Affairs.
Sources said the probe is intended to find out if there has been any substantial purchase or sale of shares between the group companies over a two-to-three month period.
"Even if prima facie it seems that there has been no violation, one needs to check if the loans and investments made into the group companies are supported by any clause that the same could get converted into equity, or any other form of control, later," said the source.
Further, the market regulator proposes to check if the companies had made the required disclosures to stock exchanges before such proposal was announced.
Reportedly, institutional investors had strongly objected to the fact that the acquisition decision, which the company had conveyed to the Bombay Stock Exchange (BSE) after trading hours, was not communicated to shareholders first.
(Business Standard)
The Securities and Exchange Board of India (Sebi) has, prima facie, not found any violation of norms relating to takeover and corporate governance in its preliminary surveillance of the deal involving the acquisition of Maytas Infra by Satyam Computer Services.
Thus, sources close to the development said, there was no need for a formal investigation. Instead, the market regulator would probe the deal under Sections 370 and 372 of the Companies Act.
Therefore, the probe would be limited to the deal between the two listed entities -- Satyam and Maytas Infra -- and not cover the one involving Satyam and unlisted firm Maytas Properties.
Section 370 of the Companies Act deals with loans to companies under the same management. Under this Section, a company could not give loans or any form of guarantee to companies under the same management unless it has been approved by a special board resolution. Section 372 deals with purchase of shares of one company by another.
These purchases, sources said, are governed by certain restrictions imposed by the board of the company at the time of its inception and copies of this document are submitted to the market regulator and the Department of Company Affairs.
Sources said the probe is intended to find out if there has been any substantial purchase or sale of shares between the group companies over a two-to-three month period.
"Even if prima facie it seems that there has been no violation, one needs to check if the loans and investments made into the group companies are supported by any clause that the same could get converted into equity, or any other form of control, later," said the source.
Further, the market regulator proposes to check if the companies had made the required disclosures to stock exchanges before such proposal was announced.
Reportedly, institutional investors had strongly objected to the fact that the acquisition decision, which the company had conveyed to the Bombay Stock Exchange (BSE) after trading hours, was not communicated to shareholders first.
(Business Standard)
How Satyam case has dented India Inc's image
December 19, 2008
The Satyam bid to merge itself with two infrastructure companies controlled by the same promoter group (the Raju family) will rightly go down in Indian corporate history as an object lesson in corporate misgovernance.
The company's board has quickly reversed the merger decision, in the wake of a shareholder revolt and a crash in the company's share price (by about 50 per cent in New York), and it now seeks to recover lost ground through a share buyback offer.
But it is worth bearing in mind that, in the case of many companies, such an offer has ended up being nothing more than a bid to bolster the share price, without any shares actually being bought back.
How this will end is therefore too early to forecast, but there can be little doubt that the promoter group, led by the company's founder-chairman, B Ramalinga Raju, has lost a good deal of shareholder trust, and some of it may never be regained -- with good reason.
It passes understanding as to how a promoter group can hope to change a company's principal business without going to the general body of shareholders for their approval, especially when the promoters hold no more than 8.6 per cent of the company.
The decision is even more dubious when the addition of a main line of business (with which there is no synergy or indeed any connection whatsoever) is sought to be achieved by a merger with firms controlled by the same group -- with no transparency on how the relative valuations was done, because this information too has not been given to shareholders.
Promoter families taking other shareholders for granted is not new; indeed, it is all too common. They got away with it in the past because retail shareholders felt powerless to influence the way the company was being run, while domestic institutional investors (both the public financial institutions of old as well as mutual funds) usually adopted a compliant attitude, even when they were represented on the board.
Things began to change after foreign institutional investors (FIIs) came on to the scene some 15 years ago; in the latest episode too, it was the FIIs who led the revolt and immediately dumped the company's stock.
It is worth noting that it was not any corporate governance rule or action by the stock market watchdog that stopped the company in its tracks; nor was it the independent directors, on whom so much reliance is placed in corporate governance regulation.
Indeed, the Satyam board was packed with independent directors who are men of standing, and whose credentials no one would ordinarily question: the dean of a prestigious business school, a well-known professor of Harvard Business School, a former director of the Indian Institute of Technology in Delhi, a retired cabinet secretary, and the like.
That such worthies could be parties to a decision that met with instant shareholder anger raises legitimate questions about whether too much faith is in fact placed on independent directors.
The fundamental weakness in this model is the fact that independent directors usually have no stake in the success of the business; indeed, in some other cases it has been revealed that independent directors were being financially benefited in a variety of indirect ways (like supplier contracts to relatives), and therefore beholden to the company management.
In the case of Reliance, for instance, the level of adherence to corporate governance norms became known to the world at large only when there was dissension in the promoter group, leading to several startling revelations.
While it would be wrong to paint everyone with the same brush, the Satyam episode certainly raises questions about what standards of corporate governance exist, beyond the talk at seminars and the many codes that have been framed.
It is unfortunate that Corporate India's image should be dented in this fashion; but it would be even more unfortunate if the Satyam case did not lead to a more careful scrutiny of what exactly goes on in Corporate India.
Business Standard
The Satyam bid to merge itself with two infrastructure companies controlled by the same promoter group (the Raju family) will rightly go down in Indian corporate history as an object lesson in corporate misgovernance.
The company's board has quickly reversed the merger decision, in the wake of a shareholder revolt and a crash in the company's share price (by about 50 per cent in New York), and it now seeks to recover lost ground through a share buyback offer.
But it is worth bearing in mind that, in the case of many companies, such an offer has ended up being nothing more than a bid to bolster the share price, without any shares actually being bought back.
How this will end is therefore too early to forecast, but there can be little doubt that the promoter group, led by the company's founder-chairman, B Ramalinga Raju, has lost a good deal of shareholder trust, and some of it may never be regained -- with good reason.
It passes understanding as to how a promoter group can hope to change a company's principal business without going to the general body of shareholders for their approval, especially when the promoters hold no more than 8.6 per cent of the company.
The decision is even more dubious when the addition of a main line of business (with which there is no synergy or indeed any connection whatsoever) is sought to be achieved by a merger with firms controlled by the same group -- with no transparency on how the relative valuations was done, because this information too has not been given to shareholders.
Promoter families taking other shareholders for granted is not new; indeed, it is all too common. They got away with it in the past because retail shareholders felt powerless to influence the way the company was being run, while domestic institutional investors (both the public financial institutions of old as well as mutual funds) usually adopted a compliant attitude, even when they were represented on the board.
Things began to change after foreign institutional investors (FIIs) came on to the scene some 15 years ago; in the latest episode too, it was the FIIs who led the revolt and immediately dumped the company's stock.
It is worth noting that it was not any corporate governance rule or action by the stock market watchdog that stopped the company in its tracks; nor was it the independent directors, on whom so much reliance is placed in corporate governance regulation.
Indeed, the Satyam board was packed with independent directors who are men of standing, and whose credentials no one would ordinarily question: the dean of a prestigious business school, a well-known professor of Harvard Business School, a former director of the Indian Institute of Technology in Delhi, a retired cabinet secretary, and the like.
That such worthies could be parties to a decision that met with instant shareholder anger raises legitimate questions about whether too much faith is in fact placed on independent directors.
The fundamental weakness in this model is the fact that independent directors usually have no stake in the success of the business; indeed, in some other cases it has been revealed that independent directors were being financially benefited in a variety of indirect ways (like supplier contracts to relatives), and therefore beholden to the company management.
In the case of Reliance, for instance, the level of adherence to corporate governance norms became known to the world at large only when there was dissension in the promoter group, leading to several startling revelations.
While it would be wrong to paint everyone with the same brush, the Satyam episode certainly raises questions about what standards of corporate governance exist, beyond the talk at seminars and the many codes that have been framed.
It is unfortunate that Corporate India's image should be dented in this fashion; but it would be even more unfortunate if the Satyam case did not lead to a more careful scrutiny of what exactly goes on in Corporate India.
Business Standard
Govt orders probe into Satyam's Maytas deal
December 19, 2008
The government is understood to have ordered a probe into Satyam Computer Services' [Get Quote] controversial decision to buy two group-promoted companies and then reversing the deal within a few hours under pressure from investors.
According to official sources, the government will examine if the company had any malafide intention to influence the stock market.
Satyam Computers had on Tuesday announced that it will acquire two group firms - Maytas properties and Maytas Infra for $1.6 billion (about Rs 8,000 crore) as part of its diversification strategy, a move that sparked a row over alleged violation of corporate governance laws.
However, the company had to reverse the decision within a few hours after its scrip nosedived more than 55 per cent on the US bourses.
Sources said the government will examine whether the company indulged in any short selling and whether it wanted to cover its position after the stock prices plummeted.
The ministry of corporate affairs had said it will look into whether the company violated any corporate governance laws while entering into such a deal involving share holders' money.
The government is understood to have ordered a probe into Satyam Computer Services' [Get Quote] controversial decision to buy two group-promoted companies and then reversing the deal within a few hours under pressure from investors.
According to official sources, the government will examine if the company had any malafide intention to influence the stock market.
Satyam Computers had on Tuesday announced that it will acquire two group firms - Maytas properties and Maytas Infra for $1.6 billion (about Rs 8,000 crore) as part of its diversification strategy, a move that sparked a row over alleged violation of corporate governance laws.
However, the company had to reverse the decision within a few hours after its scrip nosedived more than 55 per cent on the US bourses.
Sources said the government will examine whether the company indulged in any short selling and whether it wanted to cover its position after the stock prices plummeted.
The ministry of corporate affairs had said it will look into whether the company violated any corporate governance laws while entering into such a deal involving share holders' money.
Shares buyback: Satyam board to meet on Dec 29
Satyam Computer Services said on Thursday its board will meet on December 29 to consider a share buyback proposal.
"A meeting of the board of directors of the company will be held on December 29, 2008, to consider the proposal for buyback of shares of the company," Satyam said in a regulatory filing to the stock exchanges.
The company's move to mollify shareholders comes after it raised investor ire on its proposed $1.6-billion acquisition deal, which had to be called off.
After suffering a severe battering on Wednesday, Satyam shares surged 13.88 per cent to an intra-day high of Rs 180 on Thursday on the Bombay Stock Exchange.
It was later trading at Rs 172.75, up 9.30 per cent on the BSE in the late afternoon trade.
On Wednesday, the scrip had plunged as much as 30 per cent to close at Rs 158.05 after touching its 52-week low.
The company on Tuesday had announced a $1.6-billion deal to acquire Maytas Properties and Maytas Infrastructure -- companies run by Satyam chief Ramalinga Raju's sons B Rama Raju and Teja Raju.
PTI
"A meeting of the board of directors of the company will be held on December 29, 2008, to consider the proposal for buyback of shares of the company," Satyam said in a regulatory filing to the stock exchanges.
The company's move to mollify shareholders comes after it raised investor ire on its proposed $1.6-billion acquisition deal, which had to be called off.
After suffering a severe battering on Wednesday, Satyam shares surged 13.88 per cent to an intra-day high of Rs 180 on Thursday on the Bombay Stock Exchange.
It was later trading at Rs 172.75, up 9.30 per cent on the BSE in the late afternoon trade.
On Wednesday, the scrip had plunged as much as 30 per cent to close at Rs 158.05 after touching its 52-week low.
The company on Tuesday had announced a $1.6-billion deal to acquire Maytas Properties and Maytas Infrastructure -- companies run by Satyam chief Ramalinga Raju's sons B Rama Raju and Teja Raju.
PTI
Satyam may launch shares buyback to appease investors
December 17, 2008
Having infuriated investors with a deal that would have propped up companies of its promoters, Satyam Computers is now looking to mollify shareholders through rewards such as a share buyback or dividend payout.
"We will take the decisions in few days. In the light of whatever has happened, buyback is one of the option... (it) being one of the investor friendly measures that we may consider. We are also discussing whether it will be dividend or buyback," Satyam's CFO Srinivas Valdamani
The company on Tuesday announced a $1.6 billion deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Satyam chief Ramalinga Raju's sons B Rama Raju and Teja Raju.
Investors' opposition forced Satyam to call off the deal on Wednesday.
Valdamani said the company has a cash surplus of $1.1 billion and it was meant for inorganic and organic growth and corporate actions like giving dividends and bonus share or a buyback.
(PTI)
Having infuriated investors with a deal that would have propped up companies of its promoters, Satyam Computers is now looking to mollify shareholders through rewards such as a share buyback or dividend payout.
"We will take the decisions in few days. In the light of whatever has happened, buyback is one of the option... (it) being one of the investor friendly measures that we may consider. We are also discussing whether it will be dividend or buyback," Satyam's CFO Srinivas Valdamani
The company on Tuesday announced a $1.6 billion deal to acquire Maytas Properties and Maytas Infrastructure, companies run by Satyam chief Ramalinga Raju's sons B Rama Raju and Teja Raju.
Investors' opposition forced Satyam to call off the deal on Wednesday.
Valdamani said the company has a cash surplus of $1.1 billion and it was meant for inorganic and organic growth and corporate actions like giving dividends and bonus share or a buyback.
(PTI)
Satyam under fire for $1.6 bn Maytas deal
December 17, 2008
Satyam Computer Services, India's fourth-largest software services provider, today came under fire from institutional investors after the company announced its acquisition of two companies -- Maytas Infra and Maytas Properties--for $1.6 billion (around Rs 7,680 crore).
Satyam Computer Services, India's fourth-largest software services provider, today came under fire from institutional investors after the company announced its acquisition of two companies -- Maytas Infra and Maytas Properties--for $1.6 billion (around Rs 7,680 crore).
The company's board had earlier in the day approved buying 51 per cent in Maytas Infra for $1.3 billion (around Rs 6,240 crore) and 100 per cent of Maytas Properties for $300 million (Rs 1,440 crore).
Satyam proposes to acquire 31 per cent in Maytas Infra from the promoters at a price of Rs 475 a share and make an open offer for an additional 20 per cent. The open offer price has been approved at Rs 525 a share and is subject to change according to the Takeover Code norms.
(Business Standard)
Satyam Computer Services, India's fourth-largest software services provider, today came under fire from institutional investors after the company announced its acquisition of two companies -- Maytas Infra and Maytas Properties--for $1.6 billion (around Rs 7,680 crore).
Satyam Computer Services, India's fourth-largest software services provider, today came under fire from institutional investors after the company announced its acquisition of two companies -- Maytas Infra and Maytas Properties--for $1.6 billion (around Rs 7,680 crore).
The company's board had earlier in the day approved buying 51 per cent in Maytas Infra for $1.3 billion (around Rs 6,240 crore) and 100 per cent of Maytas Properties for $300 million (Rs 1,440 crore).
Satyam proposes to acquire 31 per cent in Maytas Infra from the promoters at a price of Rs 475 a share and make an open offer for an additional 20 per cent. The open offer price has been approved at Rs 525 a share and is subject to change according to the Takeover Code norms.
(Business Standard)
Satyam calls off $1.6-bn Maytas deal
December 17, 2008
Hit by the adverse market reaction, homegrown Satyam Computers on Wednesday called off its proposed $1.6-billion acquisition of two companies promoted by the IT major Chief Ramalinga Raju's son.
Announcing the decision to call off the acquisition of Maytas Properties and Maytas Infrastructure "in light of the setback received from the investors community," Raju said: "We have been surprised by the market reaction to this decision even though we were quite positive about the merits of the acquisition."
The reversal comes within a day of the Satyam board approving the decision to acquire Maytas Properties for $1.3 billion and a majority 51 per cent stake in Maytas Infrastructure for $300 million.
(PTI)
Hit by the adverse market reaction, homegrown Satyam Computers on Wednesday called off its proposed $1.6-billion acquisition of two companies promoted by the IT major Chief Ramalinga Raju's son.
Announcing the decision to call off the acquisition of Maytas Properties and Maytas Infrastructure "in light of the setback received from the investors community," Raju said: "We have been surprised by the market reaction to this decision even though we were quite positive about the merits of the acquisition."
The reversal comes within a day of the Satyam board approving the decision to acquire Maytas Properties for $1.3 billion and a majority 51 per cent stake in Maytas Infrastructure for $300 million.
(PTI)
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