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B&E This Fortnight


Issue Date - 16/02/2012
Vodafone wins SUIT
After a long drawn out courtroom battle between Vodafone and the Indian Income Tax Department, the Supreme Court has finally ruled in favour of the company. The court’s ruling waives the tax liability of $2.5 billion in the 2007 Vodafone-Hutch deal. The historic judgement had the industry rejoicing as it sets a precedent for all future cases concerning transactions of Indian assets on foreign shores. Earlier, the Bombay High Court had ruled in favour of the Income Tax Department by pronounncing that the agency had the jurisdiction to tax the deal since the assets involved were Indian, irrespective of where the deal was done, or between whom. The Supreme Court, however, not only rejected the HC argument, it also ordered the I-T Department to return Vodafone’s deposit of Rs.25 billion with 4% interest. The ruling is seen as a setback for India’s fight against tax havens and comes as a warning for the government to rewrite its tax laws to keep abreast with today’s business environment.

RFC’s tax-free bonds
Financial stress in the Indian Railways has led the Indian Railway Finance Corporation (IRFC) to raise Rs.630 billion from tax-free bonds. The debt will allow railways to fund its construction projects. The railways’ financing wing has issued secured, redeemable, non-convertible bonds of Rs.1,000 face value each in the nature of debentures, up to Rs.300 billion, with an option for over-subscription up to Rs.630 billion .The bonds have a maturity period of 10 year and carry a coupon rate of 8%, while 15-year papers have been rated at 8.10%. In the retail category, one can invest up to Rs. 0.5 million The bonds are listed on the NSE and BSE. The application for subscription of bonds should be for a minimum of 10 bonds and in multiples of five.

HCL to create jobs
Leading IT services firm HCL Technologies, part of the $6 billion HCL Group, has announced that it will hire 10,000 employees in its US, and Europe centres over the next five years as part of its socially responsible business model for growth. The announcement came at the recently concluded World Economic Forum, in Davos. HCL Tech Vice Chairman and CEO Vineet Nayar, who made the announcement, said that the company would create these jobs for new engineers, and will partner educational institutes, local governments, local communities, in these regions, to this end. HCL said some of the pilot programmes started on these lines across five HCL centres in the US and EU, are already showing early signs of success. The company may soon replicate such programmes at more such centres. Nayar said that in the context of a rapidly changing world, the expectation from businesses is evolving to balance pursuits of profit with social and individual imperatives in order to create a sustainable growth model.

Sahara Group bids for Marriott Hotels
The Lucknow-based financial services-to-real estate conglomerate, Sahara Group, recently made a bid of Rs. 58.08 billion for a collection of Marriott hotels being sold by Royal Bank of Scotland Group Plc (RBS). The sale of 42 four-and five-star properties, which is being handled by Jones Lang La Salle, the property agent, and Hawkpoint, a corporate finance firm, has drawn interest from several potential buyers. Sahara, which had acquired London’s Grosvenor House hotel in December 2010 for Rs. 32.75 billion, is competing with names like Abu Dhabi Investment Authority and another Indian investor, Blue Post Group, among others. Coincidentally, Sahara had also bagged Grosvenor House from RBS, which took charge of the Marriott properties after the failure of talks to restructure loans it extended to the previous owner (a consortium that included Delek, an Israeli property investor and Quinlan private, the Irish real estate fund).

Foreign retailers not very keen on India
Hennes & Mauritz, a Swedish apparel brand retailer, is not happy with the government’s relaxed  stance on FDI policy in the retail sector. Although 100% FDI is open for foreign brands to fully own their business in India, foreign retailers will still have to  source 30% of their products from SMEs who have revenues of not more than  Rs. 50 million. Initially, only 51% share of stake was allowed to foreign players. High-end foreign retailers do not want to work with SMEs because they feel that quality would be compromised and small-size SMEs would not be able to handle the high volumes within the stipulated timeframes. Besides, working with numerous SME’ is tough. H&M wants to open 275 new stores this year - in countries like China, U.S., U.K., Bulgaria, Latvia, Malaysia and Thailand. But given the kinks in India’s single brand retail, not many foreign retailers feel enthused about opening shop in India.

It exports to slow
The apex body for IT services industry in India, NASSCOM, is likely to predict lower earnings for for Indian IT companies for 2012-13 fiscal. It fears that most companies will remain on a tight budget leash during the period due to global economic uncertainty and on account of cost controls on expenses on information technology outsourcing. Research firm Gartner too, has lowered its 2012 IT spend forecast from 4.6% to 3.7%. Global IT spending in 2012 will now total $3.8 trillion, Gartner said. Enterprise software, hardware, IT services and telecoms services and equipment will all see lower growth rates, it added. NASSCOM hasn’t been able to give out a clear picture of export demand for 2012-13 fiscal year as most companies are not in a position to give out their total earnings guidance for the fiscal, and are still busy negotiating with customers on outsourcing budgets. In a normal year, Nasscom officials are more or less certain about the growth forecast by January-end. Nasscom compiles forecasts from member companies, both Indian and multinationals, by January, and polls top analysts before giving its annual growth projection for the Indian IT industry some time in February. However, that has not been the case this time around. But despite the less-than usual robust earnings projection, the IT and BPO services exports are predicted to grow over 15% in 2011-12 to reach approximately $70 billion, a target the industry expects to meet.


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