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Finance and Investment
      Rohit Bajoria
Column  Updates
November 23' 2010

The Great SALE!!!

            If your household is running on a deficit, where your expenses are more than what you earn, either you should reduce your expenses or increase income. However for large conglomerates/nations both may not be an always applicable solution, hence one of the options is to take a loan or sell some assets to meet that deficit.

The Indian government has successfully taken billions of dollars of loans in the past hence now the solution to bridge the deficit is to sell state owned assets and concentrate on “primary” business.

Where in the world would you get a Rolls Royce at the price of a Harley Davidson? Of course you must be thinking “nowhere”. Assume if you did get this opportunity, the best option to get rich quick, would be to buy the Rolls Royce at the Harley Davidson price and sell it again at the Rolls Royce price or value.

Welcome to The Mother of a Sale!

The disinvestment programme of the India Government began in 1992. The disinvestment target for April 2003 to March 2004 was US$ 3.2 billion, the disinvestment target in April 2010-March 2011 is $ 9 billion and the target is expected to be met in almost half the time frame.

Collectively, state-owned firms constitute approximately 30 percent of the total market capitalization of the Bombay Stock Exchange (BSE). Other than the stock exchange, for unlisted state owned assets/companies, like oil and gas blocks, telecom spectrum, hotels, sales are made through “open” bidding or the auction route with various technical and financial qualifying terms and conditions for bidders.

What is surprising and uncanny is the price levels at which these non-listed deals are being executed and the opportunities that lie there-in are a once in a lifetime opportunity.

To take a few past examples, the ITDC’s Kovalam Beach Resort was a 65-acre, 200 room, 5 star hotel, with a 2.5 kilometer beachfront on one of the best beaches on the Indian coastline and in the world, and frequented by European and American tourists. The resort was sold by “open” bidding for Rs. 45 Crs in 2002 to the Mfar group. The actual worth of the estate at that time was approximately 10 times the bid, as calculated by experts. The parentage of the Gulfar consortium was doubtful, however, after winning the bid the estate now is in the hands of the Leela Kempinski Group of Hoteliers and Mfar would have pocketed a neat sum in profits by identifying the opportunity and cashing in on it.

The Centaur Airport Hotel, a prime property in Mumbai (one of the most expensive real-estate destinations in the world) was sold again with “open” bidding where there was only a single bid and no competitors for a sum of Rs 83 Crs to Batra Hospitality and was resold for Rs. 115 Crs. in 6 months to the Sahara Group. An “officially declared” return on investment of close to 80 percent annualized. The real profit made in this deal by the bidder and few influential individuals is anybody’s guess.

In the ‘auction’ of the 2G spectrum (the spectrum is a wavelength used for telecommunications and it is scarce, finite and limited and owned by the respective country). The nine firms that got licenses in 2008 for approx $ 370 Million (Rs. 1650 Cr) each for a pan-India license, include Essar Group-owned Loop Telecom, realty firm Unitech, Swan, Sistema Shyam, S Tel & Spice among others. (Just a point to note, S Tel had offered $ 2.9 Billion (Rs. 13752 Cr) for the PAN Indian license & was even ready to increase the bid, if required).

Subsequently, after being allotted the license, some of these firms immediately sold stakes to other companies without even setting up 1 tower or even any infrastructure to roll out services. Unitech divested 67.25 percent l to Norwegian telecom major Telenor for $1.1 billion. UAE based Telco Etisalat bought a 45 percent stake in Swan for $900 million and S Tel which had permits for only 6 circles sold a 49 percent stake to Baharain’s Batelco for about US$ 225 million.

An approximate profit of $ 850 Million and an absolute return of close to 350 percent for Unitech.

An approximate profit of $ 730 million and an absolute return of close to 450 percent for Swan.

Mr Buffett, I hope you are listening.

Let us leave the annualized return calculation as my calculator does not seem to have the capacity to calculate such large figures.

More prime assets (listed and unlisted) are to be sold, right from banking to minerals & mining assets and the basic requirements to enter this party are very basic and as follows:

  •   A large liquidity of funds.
  •   Good ground knowledge and connectivity.
  •   The mindset to play the game and take the risk.

The PARTY is ON!

Rohit Bajoria is the Vice President of Tax Assist, a tax & financial consultancy in India. An MBA by qualification, he has a wealth of experience acquired while working with HSBC.

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November 23, 2010
The Great SALE
If your household is running on a deficit, where your expenses are more than what you earn, either you should reduce your expenses or increase income.  More

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