L&T Finance Directors fleece the company

L&T Financial Holdings Ltd., just a three year old company (that had to wind up in its earlier avatar L&T Finance Ltd. because of mismanagement and reckless lending) with an annual turnover of Rs.112 crore seeks shareholders approval to pay its Directors a compensation which is unheard of amongst its peers in the Financial Services Industry.

All this, even as the company has a captive and ready customer base by way of customers of L&T Ltd., the holding company that is into EPC and Capital Goods business.  All that it has to do is to finance the equipment / services purchase by its vendors and sit tight.  No sweat.

For such a cakewalk, the company wants to pay its Chairman Y.M.Deosthalee, a Director on the board of L&T Ltd. a remuneration of close to Rs.7.33 crore and its non-executive Directors 1% of net profits.

IIAS, the proxy advisory company has quite rightly debunked this move, outraged by this incongruous payout, especially at a time when the investors in equity markets have been mauled badly by weak investor sentiment and gross under-performance by companies with sequential dwindling earnings.

This resolution deserves to be torpedoed.  Shareholders, do convey your dissent either through postal ballot or by personal presence at the meeting.  Mr.Deosthalee is nearing his retirement and is in a hurry to boost his kitty on his way out... But should you, the institutional and minority shareholders ensure that...?

It's time SIEMENS relocate to India

Poor SIEMENS. It just got unlucky.

Too much is made out of a bribery scandal. What did it do after all? It ran a cash desk for its managers to draw money at will and offer kickbacks to get deals. Over time, they say it added up to $800 million or so. So what? Didn’t late Dhirubhai Ambani (and now his sons) build the Reliance empire by bribes? The Ministers do its bidding in the Parliament. They fight its war. Even as RIL (led by Mukesh Ambani) backtracks on its earlier agreement to sell gas to RNRL (led by feuding brother Anil Ambani) at concessional rates, Murli Deora, the Minister for Petroleum and Natural gas will force his bureaucrats to file an affidavit to help beef up the RIL case. The bureaucrats in the government where Reliance had something to do get two pay checks every month. A smaller one from the government and another one much larger from Ambani’s cronies. In return, they let Reliance import capital equipments at `NIL’ rate of duty by accepting its classification as `gift’ – yes, gift of an entire plant by an overseas supplier and more.

But that’s in India. In Europe and America they look down upon corruption. They won’t let companies get away with bribed deals. They are grilling SIEMENS and imposing massive penalties. But a Bernard Madoff type $50 billion ponzi schemes are allowed. Their investment banks are allowed to issue junk bonds that have little or no underlying asset that have the power to bring down their economies. [Hell the serial collapse of Wall Street banks looked like some Communist government issuing a “shutdown-or-else” diktat to free up pricey real estate – like they do in China pushing the poor people into hinterlands to make room for Olymipic stadium and other urban infrastructure. They let their auditors, credit rating agencies and regulators get away scot-free. Even Governors can sell senate seats and the courts don’t allow their removal.

.
Hypocrisy? Well, ok for lack of a better word.

.

I have some advice for beleaguered SIEMENS management – Relocate to India. You have all the right qualifications :-)

.

NTMA - asking for bankruptcy

India’s bond market is nowhere near the maturity level of its equity markets. Reasons are not so hard to seek since equity offers ownership while debt carries an obligation to repay. When a debt paper is issued and if it is held till maturity, the obligation to repay rests with the issuer. But if it is allowed to be traded, the issuer gets back in the picture only if the instrument allows recourse. Naturally, when it comes to soverign (or Public Debt raised by Government) debt, our policy makers played safe and entrusted RBI to be the custodian, issuer, manager and Regulator of its financial needs. It suited just fine.

Earlier in the 2007-08 Budget, the monetary and debt management aspects of RBI is sought to be separated. On Friday, the government released a draft Bill to create a statutory corporate body called the National Treasury Management Agency (NTMA) to carry out debt management, cash management and management of contingent and other liabilities of the Centre and states – in the process stripping RBI of this responsibility. Former Finance Secretary S.Narayanan blows the whistle in his Livemint column.

Primarily Mr.Narayanan’s concerns are –

(a) Moral hazard – Minus the regulatory oversight by RBI, that it has ably executed for the last 60 years, NTMA functioning under the budget division of the ministry could become a carte blanche for Finance Ministers to raise funds at will. The propensity for excessive borrowings by the Governments are well documented in the past. Our budget deficits are a direct result of that profligacy.

(b) Mortgage of sovereignty - The draft Bill envisages that government bonds will be available for sale in India and abroad. It means that for the first time since independence, we will be offering sovereign bonds to overseas investors. Earlier, finance ministers and governments have shied away from this, for committing a sovereign to a debt that can be called outside the country has been a very sensitive and emotional issue. It has been a principle so far that the sovereign, the state, would not issue debt overseas.

(c) Fiscal discipline – It will in effect, empower immature policy makers to design debt instruments that they hardly understand. The recent mortgage crisis in the US that is still playing out, breaking banks after banks in the process, stands ample testimony to all likely outcomes.

As the citizen of this country, we’re already exposed to the recursive cycles of inflation and deflation. As a nation of savers, we are already parking most of our savings with the Governments (Post Office savings, PF, PPF, NSS, NSC, RBI bonds, Sr.Citizen bonds etc.) A tradeable bond market will only enable some dubious corporates to stick their trash debt paper to some unsuspecting and gullible public. We know the allegiances of Finance Minister Chidambaram, Petroleum Minister Murli Deora, Telecom Minister A.Raja et al. Now we don’t want self-imposed bankruptcy added to that. Do we?

.