Bond investors give Tesla a $1.8 billion endorsement

Bond investors on Friday gave a $1.8 billion boost to Tesla Inc’s balance sheet by snapping up the electric car maker’s first foray into the U.S. junk bond market, where yield-hungry investors have raced to lock in relatively higher returns.

Those robust returns, however, have shrunk as a strong reservoir of cash ready to deploy in the riskiest areas of the high-yield fixed income market has pushed them to near their lowest levels in three years. That has given junk-rated issuers such as Elon Musk’s U.S. car company the opportunity to raise cash cheaply.

Tesla sold $1.8 billion of eight-year unsecured bonds at a yield of 5.30 percent, the Palo Alto, California-based company said in a filing with the Securities and Exchange Commission.

The bond was sold at par, according to a source familiar with the transaction, who requested anonymity because the detail was not publicly disclosed.

Tesla initially wanted to sell $1.5 billion worth of debt but enlarged the offering because of overwhelming demand, according to IFR, a Thomson Reuters unit. The yield was slightly higher than the 5.25 percent cited at the initial launch.

Cash proceeds will help finance production of Tesla’s Model 3, which it is banking on to hit the mass market bullseye and finally help the company turn a profit. Tesla aims to boost production to 500,000 cars next year, about six times its 2016 output.

“It’s a milestone for a company from a relative unknown to what it is today,” said David Knutson, head of credit research at Schroders Investment Management.

The company, founded by Musk in 2003, has plowed revenues back into its businesses, which now include energy storage.

At the launch of the Model 3, with a base price of $35,000, Musk warned that Tesla would face months of “manufacturing hell” as it increases production of the sedan.

The ability of the high-yield sector, which some analysts and investors consider pricey, to absorb debt supply from a first-time issuer such as Tesla suggests its resilience, at least for now.

Tesla, Tesla profits, Tesla investors, Tesla Model 3, Elon Musk, Business news, Indian Express“I won’t call it a bubble,” said Andrew Feltus, co-head of high yield and bank loans at Amundi Pioneer Asset Management in Boston. “The (market) fundamentals are pretty good.”

Standard & Poor’s assigned a B-minus on Tesla’s junk bond issue, while Moody’s Investors Service rated it B3.

While the ability of Tesla to raise so much cash with such a low rating might revive memories of market bubbles such as the dot-com boom, strategists said that analogy did not apply.

“Tesla is not one of these companies,” said Stan Shipley, a strategist at Evercore ISI in New York.

Investor appetite has driven the average yield on U.S. B-rated corporate bonds to 5.72 percent late this week, down 0.37 percentage point since the end of 2016 and below its recent peak of 10.18 percent in February 2016, according to Bank of America Merrill Lynch.

The benchmark 10-year Treasury yield, in contrast, was 2.19 percent after hitting a six-week low earlier Friday.

ALONG FOR THE RIDE

Despite lingering skepticism, there has been no shortage of funds to fuel Tesla’s ambition to popularize electric cars.

Investors who jumped on the bandwagon have been rewarded.

Tesla has raised $3.3 billion in convertible bonds, which have performed well, in step with its stock.

The stock ended up 0.7 percent at $357.72 on Friday, a near-1,400 percent increase since its debut in June 2010 at $17 a share.

Tesla might have picked just the right time to become a junk bond issuer.

Investors have jumped on new supply as defaults are expected to remain low, with the economy growing at a modest pace with little inflation.

“There is a lot of liquidity in the market. There’s, on average, adequate compensation for investors,” said Robert Tipp, chief investment strategist at PGIM Fixed Income.

Achieving high-end of 6.75-7.5% growth difficult: Economic Survey

Achieving the high end of the 6.75-7.5 per cent growth projected previously will be difficult due to appreciation of rupee, farm loan waivers and transitionary challenges from implementing GST, according to the Economic Survey. This is the first time the government presented a second or a mid-year economic survey for the year 2017-18 highlighting the new factors that the economy faces since the last such exercise in February.

It also said that the scope for monetary easing was considerable and this, coupled with reform to address the twin balance sheet challenge, will help the economy achieve its full potential quicker. “Cyclical conditions suggest that the policy rate should actually be below… the neutral rate. The conclusion is inescapable that the scope for monetary easing is considerable,” he said.

The Economic Survey said that a number of indicators–GDP, IIP, credit, investment and capacity utilisation, point to a deceleration in real activity since first quarter of 2016-17 and a further deceleration since the third quarter.

The first volume of the Survey in February had predicted the range of GDP growth of between 6.75-7.5 per cent, factoring in more buoyant exports, a post-demonetisation catch-up in consumption and a relaxation in monetary conditions consequent upon demonetisation.

economic survey, eco survey, growth, gdp, news, economy, india growth, business, latest news, business newsSince then all the new factors– real exchange rate appreciation, farm loan waivers, increasing stress to balance sheet in power, telecom, agricultural stress and transitional challenges from implementing the GST — impart a deflationary bias to activity, the Survey said.

Since February 2017, the rupee has appreciated by about 1.5 per cent.

It said the government and the RBI have taken “prominent steps” to address the twin balance sheet challenge which has boosted market confidence in the short run. Also, the removal of checkposts and easing of transport constraints after Goods and Service Tax (GST) implementation can provide some short-term fillip to economic activity.

The Survey said that the balance of risk to achieving the 6.75-7.5 per cent growth has shifted to the downside. “The balance of probabilities has changed accordingly, with outcomes closer to the upper end having much less weight than previously,” it added.

Industrial production dips, contracts by 0.1 per cent in June

Industrial output entered the negative territory in June contracting by 0.1 per cent mainly due to decline in manufacturing and capital goods sectors. Besides, segments like mining, power generation, infrastructure/construction goods and consumer durables recorded poor performance. Factory output, measured in terms of Index of Industrial Production, grew 8 per cent in June 2016, according to the data released by the Central Statistics Office today.

On a quarterly basis, factory output growth during April-June slowed down to 2 per cent from 7.1 per cent in the corresponding period last year. This is the first time in the current fiscal, the industrial output has shown a decline. The IIP grew by 3.4 per cent in April and 2.8 per cent May as per the revised estimates released today. Manufacturing sector, which constitutes over 77 per cent of the index, showed a decline of 0.4 per cent in June as compared to a growth of 7.5 per cent in the same month last year.

Industrial output, India industrial output, Industrial output news, Industrial output dips, India GDP, economic surveyThe output of mining and electricity sectors during the month decelerated to 0.4 per cent and 2.1 per cent from 10.2 per cent and 9.8 per cent respectively in June last year. Capital goods output, which is the barometer of investment, declined by 6.8 per cent from a growth of 14.8 per cent a year ago. Similarly, the output of primary goods and intermediate goods during the month declined by 0.2 per cent and 0.6 per cent as against growth of 8.2 per cent and 6 per cent respectively during June last year.

The Consumer durables and Consumer non-durables have recorded growth of (-) 2.1 per cent and 4.9 per cent respectively. In terms of industries, 15 out of 23 industry groups in the manufacturing sector have shown negative growth during the month of June 2017 as compared to the corresponding month of the previous year.

GST slabs rationalisation will depend on revenue buoyancy: Arjun Ram Meghwal

Rationalisation of tax slabs under the newly-introduced GST would depend on the rise in revenue collection in the days to come, MoS for finance and corporate affairs Arjun Ram Meghwal said on Saturday. Presently, there are five tax slabs including exempted category at zero, five, 12, 18 and 28 per cent. Meghwal said, while in pre-GST time only 80 lakh dealers were registered, another 13.2 lakh had been added post its introduction, of which 56,000 were from West Bengal only, the highest among the country.

Arjun Ram Meghwal, Rationalisation of tax slabs, GST, Arjun Ram Meghwal on GST, GST Network (GSTN), indian express newsRegarding GST Network (GSTN), he said that it would be further improved. “Registered dealers may be facing some teething problems. But the system is perfect”, he said.

The dealers would also have to maintain computerised records with regards to input tax credit and reverse charge mechanism, Meghwal said at a seminar in Kolkata. He said, all these were required to eliminate the shadow economy. Regarding tax incentives in areas like the north-east, HP and Uttarakhand after introduction of GST, Meghwal said it would be decided by the GST Council. Meghwal said that the government had introduced GST after consulting all the states and not on the basis of the majority.

Had there been an opposition from a single state, the government would not have introduced it.

Rupee dives 26 paise against US dollar

The rupee tumbled by 26 paise to 64.10 against the US dollar in early trade on Thursday on increased demand for the American currency from importers and banks amid foreign fund outflows. Besides, the dollar recovering from eight week lows against some currencies overseas and a lower opening in the domestic equity markets weighed on the rupee, dealers said.

Rupee dives, against US dollar, domestic equity markets, market news, Indian express newsThe rupee had lost 21 paise versus the dollar to end at 63.84 in the previous session. Meanwhile, the benchmark Sensex down 160.05 points, or 0.50 per cent, to 31,637.79 in early trade.

Rupee plunges 19 paise against US dollar

The rupee fell further by 19 paise to 64.27 against the US dollar in early trade today due to strong demand for the American currency from importers amid foreign fund outflows. Dealers said early losses in domestic equity markets also influenced the rupee. Besides, strength in the US dollar against some other currencies overseas weighed on the rupee sentiment, they said.

RBI, Reserve Bank of India, rupee rate, rupee reference rate, india market, rupee against dollarYesterday, the rupee had tumbled by 24 paise to hit a fresh one-week low of 64.08 against the US dollar. Meanwhile, the benchmark BSE Sensex tanked 336.46 points, or 1.06 per cent, to 31,194.87 in early trade today.

Down 317 points: Sensex posts 5th straight fall on geo-political tension

Stock markets on Friday fell for a fifth session, taking the Sensex down by another 317 points as State Bank of India plunged 5.36 per cent after it reported a rise in non-performing assets (NPAs) and investors continued to fret over rising US-North Korea tensions.

According to analysts, risk appetite took a hit after the Economic Survey said achieving the high end of the 6.75-7.5 per cent growth projected previously will be difficult and called for more interest rate cuts to boost the economy.

The BSE Sensex remained in the negative zone and settled down 317.74 points, or 1.01 per cent, at 31,213.59, its weakest closing since July 4. The index had tumbled 794.08 points in the last four sessions. The NSE Nifty after cracking the 9,700-mark to hit a low of 9,685.55, finally settled lower 109.45 points, or 1.11 per cent, at 9,710.80, a level last seen on July 7.

For the week, the Sensex and Nifty both recorded first fall in six weeks, plunging 1,111.82 points, or 3.43 per cent, and 355.60 points, or 3.53 per cent, respectively. Weakening global risk appetite in the wake of US-North Korea tension has triggered profit-taking after shares scaled record highs last week. Weakness in the rupee against the American currency and lacklustre global shares dragged down the indices, too.

“Profit booking in the higher levels led the market to close flat. However, the volatility is relatively low due to the prevailing sentiment. The market could turn into consolidation as buoyed sentiment may reverse due to the fact that there is a lack of support from earnings growth,” said an analyst.

Sensex, sensex close, sensex fall, bse sensex, nifty, market open, stock market, sebi, indian express news, business newsAnand James, Chief Market Strategist, Geojit Financial Services, said, “though the Sebi’s softened stance on shell companies revived midcap stocks, volatility persisted keeping risk appetite under check. VIX (volatility index) soared over 15 for the first time in 6 months, as anxiety prevailed over the aggravating tensions between the US and North Korea, and investors were largely cautious ahead of the weekend. IIP and CPI numbers due shortly should offer the markets some distraction. Investors would be keeping their eyes on escalating tensions on the Korean peninsula for its impact on neighbouring economic powerhouses.”

“Investors across the globe continued to pare risky positions amid rising geo-political tensions between the US and North Korea. Domestic sentiment was also adversely affected after the mid-year economic survey said there are downside risks to the Indian government’s growth forecast of 6.75-7.5 per cent for 2017-18,” said Karthikraj Lakshmanan, Senior Fund Manager, BNP Paribas Mutual Fund.

J Kumar Infraprojects and Prakash Industries resumed trading on Friday and crashed by up to 20 per cent to hit the lower permissible limit after SAT stayed the curbs imposed by Sebi on them.

Financial Data Management Centre: Law Minister clears body for collection of financial data

The Reserve Bank of India (RBI) would soon no longer be the sole collector and custodian of financial data as the Law Ministry has approved a revised Cabinet proposal on the creation of the Financial Data Management Centre (FDMC) that would subsequently collect raw data directly.

“FDMC will collect data in electronic format from the (financial) regulators. Over time, it will gradually build capacity to collect data from the regulated entities i.e. Financial Service Providers,” says the revised proposal which accepts that the data warehouse could be set up only through an Act.

Initially, FDMC was to be a non-statutory body to collect data from financial sector regulators, standardise and analyse them on issues relating to financial stability for onward decisions by the Financial Stability and Development Council (FSDC). It was also to provide regular access to the data. However, the Department of Legal Affairs turned down the initial Cabinet proposal saying that a non-statutory FMDC would find it difficult to acquire data from the regulators, majority of which were statutory.

Moreover, it said that any levy of penalty through a gazette notification for violation of data management scheme would neither be legally tenable nor withstand judicial scrutiny. “Courts may not take cognizance of any such offence and compounding of the same under the Code of Criminal Procedure is also not feasible.”

Non-performing assets, bad loans, FY17 bad loans, Insolvency and Bankruptcy Code, Reserve Bank of India, Finance ministry data on bad loansLast June, Legal Affairs said it had “no legal or constitutional objection” to the revised proposal as there was “no other option but to set up a statutory FDMC”. The new proposal provides for FDMC and the regulators to “enter into agreement” for flow of data, “stringent confidentiality norms” to ensure the same level of protection as provided by various acts applicable to the regulators and guarantees that the “data centre is at all times kept secure and effectively protected”.

In order to facilitate FDMC functioning, it also seeks “consequential amendments” in the RBI Act, Banking Regulation Act and the Payment and Settlement Systems Act as their confidentiality clauses do not allow access to raw data.

The RBI is against sharing raw data that it gets from banks and other market sources with FDMC as it is not obliged to share confidential client information of banks with anybody. The only exception is when a law enforcement agency has to get specifics on an individual company for investigation purpose. But it has to then approach the courts first to get an order to request the data from the regulators.

Suspected shell companies: J Kumar, Parasvnath, Prakash move SAT against Sebi order

At least three firms — J Kumar Infraprojects, Parasvnath Developers and Prakash Industries have approached the Securities Appellate Tribunal (SAT) against the circular of the Securities and Exchange Board of India (Sebi) classifying them as “suspected shell companies”.

This after Sebi directed the stock exchanges to initiate action against 331 listed companies which are suspected to be shell firms. These scrips will not be available for trading this month, and could even face compulsory delisting. The regulator’s directive came after the corporate affairs ministry shared a list of 331 listed companies that are suspected to be shell entities.

In its petition, J Kumar Infraprojects had requested that the Sebi direction on trading ban should have stayed with immediate effect. The company had submitted that Sebi’s trading ban on its shares is arbitrary and unreasonable.

During the hearing of the petition on Wednesday, the appellate tribunal said that it needs to know under what law or regulation Sebi has taken action against the firms. It said that Sebi should have followed natural justice before taking action against the 331 companies. SAT also said the capital markets regulator should hear the suspect shell companies’ representations and then pass orders.

Sebi has informed the tribunal that its action is not final. Sebi said that it has taken only a first time action against the suspected shell companies after the Ministry of Corporate Affairs shortlisted the firms. The regulator said that it has not concluded that all the companies are shell companies. SAT will continue to hear the case on August 10. Meanwhile, Sebi’s circular on suspected shell companies has generated mixed reactions amongst experts.

SEBI and Kwality Ltd, India news, National news, Business news, India Business news“I don’t see this as an order but a preventive measure by Sebi. Such measures are taken when the regulator feels that small investors could be at risk. Sometimes preventive measures can impact those who are not guilty as well but then there is ample provision in the law for such firms to take legal recourse. This measure will have a temporary negative effect on the stock markets but will help weed out companies which do not have genuine business operations,” said JN Gupta, co-founder and managing director of proxy advisory firm Stakeholder Empowerment Services (SES) .

Rajesh Narain Gupta, managing partner at SNG & Partners said Sebi’s order has taken industry and investors by surprise and has negatively affected the reputation of some firms that may not be shell companies.

“This has lead to erosion of serious wealth and if some of the companies are found to be not shell companies this order shall still be a death knell on their perception and valuation. Devil lies in details so we need to take a deep dive on this order. It is not clear whether show cause or appropriate notice was given to these companies to justify whether these are actually shell companies or not. Some of the names appear to be good names. Protection of consumer interest is paramount, however, balance needs to be explored between protection and logical interference,” said Rajesh Narain Gupta.

Bank of India turns the corner with Rs 88 crore profit

Riding on an improvement in asset quality and lower provisioning, public sector Bank of India (BoI) has reported a net profit of Rs 88 crore in the June quarter as against a net loss of Rs 741 crore in the same period last year.

While recovery in the quarter improved to Rs 1,360 crore from Rs 970 crore in the year-ago period, upgradation stood at Rs 1,379 crore in Q1 as compared to Rs 2,209 crore in the year-ago period and Rs 1,071 crore in the March 2017 quarter. “We focused on better recoveries, upgradation and prevention of slippages during the quarter and it helped us,” BoI managing director and CEO Dinabandhu Mohapatra said.

Bank of India, Bank of India profit, Bank of India net profit, Dinabandhu Mohapatra, indian express news, business news, bankingGross non-performing assets of the bank improved to 13.05 per cent from 13.38 per cent. Net NPAs were at 6.70 per cent as against 7.78 per cent a year ago. “Barring some unpleasant surprises from outside we will definitely be improving (in terms of NPAs) quarter-on-quarter,” Mohapatra said. The bank was able to contain its fresh slippages at Rs 4,037 crore from Rs 6,233 crore last year. Of the 12 large stressed accounts which the RBI has asked banks to refer to the NCLT under the Insolvency and Bankruptcy Code for resolution, the bank has an exposure to 10 accounts for Rs 8,200 crore.