Indian Real Estate

India has for long lacked an agency to control the monopolistic and predatory practices of Indian companies. The old MTRP Act had become quite toothless after the 1991 reforms and the Indian industry had turned into the wild west. Monopolies and oligopolies could operate quite freely and there was nobody to investigate price fixing and cartelization. Industries like telecom, cement and others saw many such abuses. However the situation is changing with the advent of a new authority Competition Commission of India.

CCI goes extreme against Cement Cartel

However the situation is changing with the advent of a new authority Competition Commission of India. India’s anti monopoly watchdog Competition Commission of India (CCI) had started out a year ago tentatively by finding film producers a pittance of Rs 1 lakh. However with a year behind it, the watchdog has apparently gone to the other extreme by fining top cement companies in India 50% of their profits for the last 2 years instead of the expected 8% of their last 3 year’s revenues (regulation allows for a maximum penalty of 10%). This comes to around Rs 6300 crores which is almost the whole profit made by the industry. Note there is a seemingly lack of balance about its orders going from one extreme to the other extreme. The order against DLF was a good one finding the right balance , however the cement companies one seems too high and will be overturned in all probability by the Appellate Council.

Real Estate under the scanner of CCI

The Competition Commission of India which recently came into being to check the wild west state of the Indian industry has started in a very promising manner. CCI had first ordered India’s biggest real estate company DLF to pay a hefty fine for using its heft and clout to shortchange individual buyers of its luxurious apartment project in Gurgaon. Then it had posted a huge fine on cement companies in India for cartelization. Now CCI is coming out with a ruling against 70 real estate companies in India for forcing real estate buyers to sign one sided contracts which heavily benefit the company at the expense of the buyer. The current round of investigations was kicked off when CCI got a complaint against NCR-based developer Tulip Infratech. The commission decided to expand the scope of the investigation to look at wider practices across the industry and has sent legal notices to developers in the NCR. It now plans to include developers in the western region in its scrutiny.

CCI is specifically examining:

a)      Announcing projects before getting all approvals from authorities

b)      Not revealing all applicable costs to buyers at the time of purchase

c)      One-sided clauses through which a developer can delay completion of projects, increase or decrease the size of apartments, and change building plans mid-way through projects.

Last year, it had imposed a penalty of Rs 630 crore on DLF, the country’s largest real estate company, for misusing its dominant position in Gurgaon and forcing buyers to enter into one-sided contracts in three projects.

Note India’s Real Estate sector is one of the worst in India in terms of illegal and unethical practices. In fact portfolio managers refuse to invest due to creative accounting used by the industry to totally make their financial statements useless from an investor perspective. India’s Real Estate Sector is one of the most unloved sectors in the Stock Market. Even Fund Managers shun this Sector because of the complete lack of trust in the financial statements published by the Real Estate Companies. With the whole industry most unorganized and companies playing with their books, its not a wonder that the sector continues to languish nearly 70-80% of its 2008 peak despite the broader market being only 10% below its all time peak. Real Estate Companies trying to raise funds in the Primary Market have been stymied by the lack of interest and distrust by the investor community. Even the most famous Real Estate Groups are frequently in the news for scams and frauds.

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India’s Brazen Crony Capitalism is nothing new to the Greenworldinvestor readers where we have time and again been highlighting how the unholy nexus of politician-businessmen have been looting the country dry.

We recently wrote how on the easiest way to become rich in India is by becoming a politician crony.

India is a country with one of the largest population of poor people living hand to mouth. But becoming super rich in this country is quite easy if you know how. All you have to do is become a political crony and start counting your millions if not billions. Corruption in India has become rampant with a scam being uncovered almost every day. Politicians and Businessmen have been jailed but they have managed to get out on bail using their millionaire lawyers to fake illness and other shenanigans. Some politicians are now involved in both professions with some rumored to be billionaires owning companies through surreptitious means and parking their money in Swiss banks. Business Groups in India see their shares rising and going down depending on which political party wins, proving the nexus between politicians and businessmen. There has been no reforms to separate these two and now powerful politico-business dynasties have started ruling large parts of India.

The recent exposure of the humongous coal mining scam further exposes the loot and plunder of India’s natural resources. According to one businessman there is no option but to indulge in this looting in order to survive.

Big Fat Indian Wedding

If you were in his position, you would do the same thing,” the businessman said, asking not to be identified because his company also received coal fields and did not want to draw attention to himself. “In this country, it’s difficult to survive. Whoever has a master key wants to eat up all of India. Whoever doesn’t have a key is struggling to survive.”

Mr. Jayaswal is building a large house in Nagpur and hosted his two children’s weddings in Phuket, an island in the south of Thailand. For his daughter’s wedding, Mr. Jayaswal flew in 350 friends, business associates and politicians for an event that was featured on the popular Indian television program “My Big Fat Indian Wedding”.

The 2G telecom scam had exposed many of the telecom and real estate tycoons as being nothing more than greasy middlemen who managed to make it big with their political connections and corruption. The Supreme Court had managed to get some of these politicians and businessmen into jails before they used their money power to get out.

Crony Capitalists in India

“DB Realty,one of the biggest beneficiaries of the Real Estate Boom in India now faces the music. This company has found itself in the center of the scam. It is charged with making hundreds of millions of dollars by buying a telecom license cheaply and flipping it for huge profits. With charges of this publicly listed firm having equity holdings from the mafia, DB Realty portrays the worst of India’s Crony Capitalism. The lines between India’s Politicians, Businessmen and Bureaucrats have been blurring. Even petty lobbyists like Nira Radia now command wealth measured in hundreds of crores. It remains to be seen how far the guilty are punished and whether the real ringleaders are brought to book. Note the 2G Telecom Scam has already implicated some of the biggest corporate houses of the country like Unitech, ADAG Group. Other big conglomerates like Videocon, Essar were also involved in winning the licenses.”

Coal Scam exposing different actors but outcome will be the same as forgotten 2G Scam

Just as the media focused on the corrupt in the 2G scam and conveniently forgot them after a new juicy scam came out, the same thing will happen again. Currently the media is bringing out monstrous corruption stories on the beneficiaries of the scam accused, but soon everything will be forgotten and the scamsters will be out of jail free.

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Abhijeet Group Prime Coalgate Beneficiary

10-seater Bombardier jet, a flat in Mumbai that costs Rs75 crore, daughter’s wedding bash in Phuket, real estate in Nagpur running into crores… Manoj Jayaswal, chairman of the controversial Abhijeet Group, sure lives life king-size.
Jayaswal’s leapfrog began after he got five coal blocks, but that would only be half the story.

His group leveraged the free booty by proposing power projects and got Rs22,000 crore of loans sanctioned from various banks. Of this, Rs11,000 crore has been disbursed with no project near commissioning, and that could be the beginning of bigger problems for lenders, said experts.

Monthly interest payments along with salary and administrative expenses run into huge sums, between Rs100 crore and Rs110 crore, for the Abhijeet group.

Marans of the Sun Group are the poster childs of Crony Capitalism in India

Sun TV is one of India’s largest media companies having interests in TV, Print and Cable Networks with a predominant focus in the southern state of Tamil Nadu. The stock used to trade at lofty valuations as it showed strong growth and margins year after year. The promoter of this company are the Marans who are nephews of Karunanidhi chief of the DMK regional political party. With close access to the levers of power, the company owners could manage to drive away the competition using extra judicial means as was seen in the case of Hathaway Cable. One of the Maran brothers is the Textile Minister of India and before that he was the Telecom Minister of India. However Sun TV has started tanking,   as the DMK which was ruling in Tamil Nadu lost the elections to the opposition recently. This has resulted in Sun TV coming under massive pressure, as the new government comes out all guns blazing. The AIDMK is proposing the nationalization of the cable TV network in the state which would lead to massive loss as it is a huge cash generator for Sun TV.

The Indian Government has been enmeshed in a never ending series of scandals and scams. The government constantly fighting the endless attacks on it by the opposition and allies alike has been paralyzed letting the economy go to the dogs. The economic growth has almost halved due to this policy freeze as well as the general global slowdown. However in the last couple of days the Government has developed the balls to go ahead with some unpopular reforms which were hanging fire for a long time. This step comes even as the Congress Party is under attack in a massive mining scam which is implicating top party leaders for looting the country of its natural resources.

Indian Supreme Court Blasts the Government

The low level of trust in the Indian Government’s investigative and vigilance agencies was revealed when India’s Highest Court, the Supreme Court of India blasted the Government for its choice of the Central Vigilance Commissioner. India has been rocked by a series of Housing Loan, Telecom and Land Scams recently implicating top politicians, bureaucrats and even army generals and admirals. However no one expects anyone significant to be prosecuted as the prosecutors themselves are compromised. It is openly known that the Central Bureau of Investigation (CBI) is totally controlled by the ruling party at the center. The Income Tax and Enforcement Directorate also serve as puppets of the Government being selectively used against opposition politicians and businessmen.

“If we have to go down, we have to go down fighting,”

In India reforms have generally been implemented under major distress because otherwise there is no push factor for politicians to alienate their constituencies when all is going relatively well. Even though UPA 1 went ahead with some reforms, the second stint of the Government went quiet as the economy was doing well. India’s big bang economic reforms of 1991 took place against the backdrop of a major fiscal crisis in which India had to mortgage its gold to get foreign currency to pay for imports. With the ruling party at the center under siege from all sides, perhaps the leaders thought that things could not become possibly even worse and went ahead. The reforms which are being now opposed by its allies are:

a)      Raising the prices of diesel which is heavily subsidized and capping the LPG subsidy to middle class households

b)      Allowing FDI in aviation and multi-brand retail

c)       Divesting minority stakes in a number of state owned firms.

DNA

Prime Minister Manmohan Singh said at the meeting that the time had come for big bang reforms. “If we have to go down, we have to go down fighting,” he said.The cabinet on Friday cleared 51% Foreign Direct Investment (FDI) in multi-brand retail stores.In another major decision, the government also cleared FDI in aviation by foreign carriers.Cabinet has raised the FDI cap on various streams of broadcast services by up to 74%.The government also approved sale of its minority stakes in four public sector firms — Hindustan Copper, Oil India, MMTC and Nalco — to raise up to Rs15,000 crore.

NY Times

The Cabinet’s decision came as a major surprise and immediately sparked new optimism that a government plagued by scandal was finally breaking out of the political paralysis that had stifled reforms for months.

The Cabinet decided to allow foreign firms to own a majority stake in multi-brand retailers here for the first time. However, individual states would have the right to decide whether to allow the retailers to operate from their territory, according to government officials.

U.S.-based Wal-Mart, British-based Tesco PLC, French-based retailer Carrefour and others have been interested in entering India, a country of 1.2 billion people where retail is the second-biggest industry behind agriculture.

GMR in Spotlight Now

GMR is one of India’s largest infrastructure/construction companies with presence in roads, power, airports, construction etc. Like other infra majors the company has been facing a tough time as interest costs have increased, projects have got delayed and growth has slowed. The company now faces attack to its showpiece airport project, for unfairly wrangling out major concessions worth billions from the regulators (corruption and collusion implied by the Indian auditing statutory body CAG).

Note regulatory capture by major corporate groups is quite well known but the proactive approach of low key Government body CAG in recent times has exposed massive corruption in multiple sectors. The 2G scam has already caused the jailing of ministers and CEOs (though, out on bail as usual) and led to cancellation of licenses for many companies. Now the spotlight has fallen on the PPP model followed in giving India’s capital airport to a consortium led by GMR.

The report exposes how:

  • Capital costs were escalated in the middle of the project
  • Additional real estate development was done
  • How the concessionaire manipulated to lower the Government’s revenue share through JV with related entities.

The report is scathing and likely to lead to a long drawn court case with major financial implications on GMR. While the current spotlight in on the huge coal allocation scam, the airport scam is not to be dismissed either.

2G and CWG Scam

India has lately become a nation known for endemic corruption rather than the world’s poster growth boy with the ruling party members implicated in a number of corruption scams. With the Government reluctant to take action against its own, the Supreme Court was forced to take over the supervision of the investigating agency CBI. In the first charge sheet top corporate honchos and CEOs were put under arrest along with the former telecom minister Raja and his cronies. With the ruling party under pressure from a civil society movement against corruption, the ability to manipulate the investigation process is limited. Not that the Government is not trying put impediments in the court cases of top ministers and leaders, indulging in character assassination of the eminent social activists like Santosh Hegde and others. This comes even as other chief ministers of the Congress like Gehlot get caught in nepotism.

Kalmadi who is a Congress member of Parliament and the Chairman of the powerful Olympic Association in India has been arrested in the CWG scam. Note the Commonwealth Games has been known to be one of the most corrupt ones organized in India. Some of the organizing members and Kalmadi friends have already been arrested and released. It is almost 6 months after the Games, with conclusion that Kalmadi has been arrested even as numerous cases of manipulation and siphoning of money have been reported. Not a surprise, given that the Government routinely manipulate the investigation process and agencies like CBI to its own ends.

Indian Express

Government auditor CAG today slammed the government for giving out Delhi airport and its land with a potential earning capacity of Rs 1,63,557 crore to private-led operator DIAL which made a total equity contribution of only Rs 2,450 crore.

With an equity contribution of Rs 2,450 crore of which the private GMR-led consortium’s share was Rs 1,813 crore, the Delhi International Airport Limited (DIAL) got a brownfield airport for 60 years, the report of the Comptroller and Auditor General (CAG) said. A brownfield airport is one which is already in existence.

Renewable Energy Certificate

Renewable Energy Certificate prices in India are showing massive volatility with prices going down by almost 20% in one month as supply exceeded demand. Note the REC market in India is relatively young and is traded on just 2 exchanges. The frequency is just once a month as volumes remain low with limited participants. The market came into being after CERC mandated that by 2020, around 15% of the Indian electricity supply should come from green energy sources compared to around 5% now. To fulfill this requirement each state would have to set up a renewable energy target called RPO. Each state would have a different RPO determined by the state electricity regulator since different states had different green energy potential. The electricity producers could meet the shortfall in their green energy obligations by buying and selling of RECs.

However the market for REC remains volatile due to the fact there is a lot of uncertainty with RPO. The biggest source of this problem is the fact that RPO is not enforceable by the regulator. If the state slips in its RPO, it does not have to bear any penalty or punishment. Given the pathetic state of the electricity distributors in the state with billions of dollars in debt, it seems unlikely that they will buy expensive green energy to meet their RPO.

Indian Renewable Energy Certificate Market grows by an astounding 600% annually

India recently introduced the Renewable Energy Certificate Scheme to promote the use of Green Energy in India through a market based pricing mechanism. Other cleantech subsidies are being gradually reduced in favor of this single unified market process. In Wind Energy, the use of accelerated depreciation and GBI has been cancelled this year. REC Trading has seen an exponential increase almost every month since inception and it grew by almost 50% in June to see a record turnover of almost $10 million. Though small in absolute terms, the figure is set to grow as the pan India market sees many organizations entering to fulfill their Renewable Energy Obligations. India has set a target to obtain 15% of its electricity requirements from Renewable Energy from around 6% now. This will require about 4-5 GW of Green Energy installations every year.

Solar Renewable Energy Certificate (SREC) Prices to get support from New Jersey Legislators

Solar Renewable Energy Certificate (SREC) Prices in New Jersey have been falling at a sharp rate from a high of $600 to $225 as high returns from falling solar panel prices and other tax breaks. This has led to a massive growth in solar installations in the state making it the 2nd largest state by solar capacity. New Jersey installations have crossed 500 MW and made it a huge green job driver in the state. However this boom has made the market driven SREC prices fall quite sharply. Though not falling as sharply as Pennsylvania where SREC prices have become a joke, they are still low and falling.

New Jersey lawmakers are trying to rectify the situation with Assembly Telecommunications and Utilities Committee  approving two bills that seek to reverse a recent sharp fall in the value of the treadable Solar Renewable Energy Certificates. This will have the following measures like:

 1) Increase the PPA term to 15 years

2) Make non-utilities buy SRECs

to boost the falling SREC prices.

You can read:

“Renewable Energy Certificate” Policy Starts in India – What you need to Know and Who will Benefit

Business Line

 Only 1,58,320 non-solar renewable energy certificates were traded on the country’s two energy exchanges on July 25 compared with 2,36,485 in the trading session of last month.

The prices also sank — to Rs 2,000 a REC on the Indian Energy Exchange Ltd, and Rs 2,202 on the Power Exchange of India. Comparatively, the prices were Rs 2,402 and Rs 2,460 last month.

(RECs are generation-based ‘certificates’ awarded (electronically, in demat form) to those who generate electricity from renewable sources such as wind, biomass, hydro and solar, if they opt not to sell the electricity at a preferentially higher tariff. These certificates are tradeable on the exchanges and are bought by ‘obligated entities’, who are either specified consumers or electricity distribution companies. These obligated entities may either required to purchase a certain quantum of either green power or RECs. Trading happens on the last Wednesday of each month.)

Demand for RECs also fell steeply. Demand fell to 1,61,028 RECs against a supply of over 5 lakh RECS. Buy bids June were for 3,60,691, which means that the demand has fallen to less than half.

The Indian Energy Exchange accounted for 93 per cent of the traded volume today.

“With the market starting high during initial months of the financial year itself, we were actually expecting this. However, with prices declining in REC, we can expect new buyers emerging and, hence, prices getting stabilised after few months,” Mr Vishal Pandya, Director, REConnect, , a consultancy that operates in the REC market, told Business Line.

“The whole market is designed based on the assumption of Renewable Purchase Obligation enforcement and the current measures on the enforcement side seem not sufficient,” Mr Pandya said.

The only silver lining was the demand for solar RECs. Buy bids totalled to 8,754 solar RECs. However, due to non availability of solar RECs, only 179 were trade—at a price of Rs 12,800.

The Indian Stock Market remains a highly manipulated one, despite the more than one trillion dollar in combined market capitalization. While most of the large cap index stocks remain less volatile, the mid cap stocks are very volatile. Most of the stocks show large movements without rhyme or reason, falling 20-40% on market rumors which are vague and totally non-credible. Besides manipulation by stock market operators, small cap and mid cap stocks remain highly vulnerable to the shenanigans of their promoters most of whom are totally corrupt.

Many of the large mid cap stocks like Pipavav Defence, Tulip Telecom fell heavily on rumors that some big market operator had gone bust leading to large sales. Other rumor that was credited, with being behind the fall was that a large FII Vanguard had sold the shares. Till now, no one had been able to decipher the real reason why the stocks fell. However this is not a new phenomenon as even larger stocks like DLF, Unitech, Suzlon, Satyam and others have fallen heavily on rumors. Investing in the Indian stock markets remains a hazardous activity and investing based on fundamentals remains mostly a fool’s activity.

Sun TV one of the biggest media companies fell by a whopping 40% intraday as the CBI accused its promoters of being involved in a scam involving a bribe of $100 million. The promoters who are part of a powerful political clan in the Southern State of Tamil Nadu have been accused of various frauds and swindles. Their group stocks keep going up and down like a yo-yo with the changing of their political fortunes.

Yesterday it was Tulip Telecom. Today, it was the turn of Sun TV to crash 40 per cent in opening trade.

Mr Kalanithi Maran-controlled Sun TV and SpiceJet plummeted in early trade on Friday on media reports that the Central Bureau of Investigation is poised to file a charge-sheet against the former Telecom Minister, Mr Dayanidhi Maran, and his brother, Mr Kalanithi Maran, for allegedly receiving Rs 549 crore for their role in the acquisition of Aircel by the Malaysia-based firm Maxis.

The stock of Sun TV opened 40 per cent lower at Rs 176.75, but bounced back sharply to trade at Rs 251.4, still a fall of 14.7 per cent.

Meanwhile, the BSE Sensex was trading higher by 1.4 per cent at 16,871.

SpiceJet crashed over six per cent to trade at Rs 26.40 in the opening minutes.

According to reports, the CBI has almost zeroed-in on illegal gratification accepted by Mr Dayanidhi through Mr Kalanithi Maran in the garb of premium share investment in the family-controlled Sun Direct.

Mr Dayanadhi Maran does not own any stake in Sun TV or SpiceJet.