Current Affairs: July 2010

NATIONAL AFFAIRS

Business takeover code re-written
The Takeover Regulations Advisory Committee under the chairmanship of C. Achuthan, in its 139-page report to the Securities and Exchange Board of India (SEBI), has proposed sweeping changes on critical issues, including the open offer trigger, offer size, indirect acquisitions, exemptions from open offer obligations, calculating the offer price and competing offers. This comes nearly 16 years after the guidelines were formally notified for the first time and after 23 amendments to the last major review in 1997.

The takeover panel, formed by SEBI in September 2009, has recommended an increase in the open offer trigger from 15 per cent to 25 per cent. Further, the open offer has to be made for all the shares of the target company, instead of the current practice of an offer for acquiring an additional 20 per cent. Analysts said the proposed rules would raise the financing required for taking over a firm, but would encourage investors taking strategic stakes in companies.

The panel, which also had Tata Steel Ltd Chief Financial Officer (CFO) Koushik Chatterjee and Larsen & Toubro Ltd CFO Y M. Deosthalee as members, concluded that since a holding level of 25 per cent permits the exercise of de facto control over a company, this could be fixed as the appropriate open offer trigger threshold in the Indian context.

The committee has also noted that the 100 per cent open offer requirement could result in an acquirer ending in holding beyond the maximum permissible non-public shareholding, which may require the acquirer to either de-list or bring down his holding to meet the continuous listing requirements. The panel has recommended that the acquirer may state upfront his intention to de-list if his holding in the target company were to cross the de-listing threshold, pursuant to the open offer.

In the absence of any such disclosure or when the response to the open offer is below the de-listing threshold, the acquirer would be required to either proportionately reduce both his acquisitions under the agreement that triggered the open offer and the acquisitions under the open offer or to bring down his holding to comply with continuous listing requirements.

The committee has also recommended that a short public announcement should be made by the acquirer on the date of entering in to an agreement followed by a detailed public statement within five business days thereafter. The overall time-line for an open offer has been brought down from 97 days to 57 business days.

The committee, in its attempt to enable transparent consolidation by persons already holding in excess of 25 per cent, has recommended voluntary offers of a minimum size of at least 10 per cent and a maximum size of such number of shares that would not result in any kind of breach of the maximum non-public shareholding permitted under the listing agreement. Under the existing regulations, an offer for a percentage lesser than minimum prescribed percentage can only be by shareholders holding more than 55 per cent.

The panel has also recommended that creeping acquisition be permitted only for acquirers who hold more than 25 per cent of the voting capital, subject to aggregate post-acquisition shareholding not exceeding the maximum permissible non-public shareholding. It has, however, left the annual creeping acquisition limit unchanged at five per cent.

In another recommendation that is expected to enhance the corporate governance norms, the committee has made it mandatory for the independent directors of the target company to give their recommendation on the open offer. Also, no appointment of representatives of the acquirer to the board of directors of the target company would be permitted unless the acquirer places 100 per cent of the consideration under the open offer in cash in an escrow account.

Major changes have also been proposed in the manner minimum price payable is calculated. According to the committee, the offer price would be the highest of (i) market price to be based on 12 weeks volume weighted average of market prices as against higher of weekly averages of market prices for 26 weeks or 2 weeks; (ii) a qualitative improvement and expansion in the look back provision; (iii) in the case of indirect acquisitions, ascription of value to the target company under certain circumstances.

Also, any kind of non-compete fee or control premium paid to promoters will have to be factored in while calculating the open offer price for the minority shareholders.

PM’s panel pegs exports at $216 billion
India's exports are projected to grow by about 22 per cent to $216 billion in 2010-11, on the back of recovery in global trade, according the Prime Minister's Economic Advisory Council.

With contraction in global merchandise demand, India's exports declined by 4.7 per cent to $176.6 billion in 2009-10. However, in the first two months of 2010-11 exports grew by 35.7 per cent.

The International Monetary Fund has projected that exports, at constant price, from emerging and developing economies would increase by 10.5 per cent in 2010. Exports from the advanced economies are also expected to rise by 8.2 per cent.

India-Iran sign six pacts
In their first interaction after the UN imposed the fourth round of sanctions on Tehran in June 2010 over its controversial nuclear programme, India and Iran, on July 8, 2010, signed six pacts, including one on cooperation in new and renewable energy and another on increasing the number of flights between the two countries. The MOUs were signed at the end of the two-day meeting of the India-Iran joint commission.

The other four accords were: agreement on transfer of sentenced prisoners; MOU on cooperation in small-scale industry between the National Small Industries Corporation (NSIC) and the Iranian Small Industries and Industrial Parks Organisation (ISIPO); programme of cooperation on science and technology; and MOU on cooperation between the Central Pulp and Paper Research Institute (CPPRI) of India and the Gorgan University of Agricultural Science and Natural Resources (GUASNR).

The signing of the agreements clearly reflected New Delhi’s intention that it would pursue an independent policy on Iran, notwithstanding the American pressure on it not to enlarge the area of its engagement with Tehran.

Although it is committed to abide by the UN sanctions on Tehran, New Delhi maintains that the Iranian nuclear issue must be resolved through negotiations since the sanctions would only hurt the common Iranian people. While recognising Iran’s right to develop nuclear energy for peaceful purposes, it has also advised Iran to strictly abide by the IAEA guidelines while pursuing its nuclear programme.

The two sides also discussed the situation in Afghanistan at length with both of them expressing their common stakes in the stability of the violence-torn country. New Delhi is believed to have pressed for structured and regular consultations with Tehran on defeating terrorists in Afghanistan and in the

Visit of Myanmar’s military ruler
Ignoring worldwide concerns over human rights violations in Myanmar, New Delhi rolled out a red carpet welcome for Myanmar military ruler General Than Shwe on July 27, 2010. Top Indian leaders held wide-ranging talks with him on a plethora of issues, including bilateral ties as well as international developments.

The increasing Chinese influence in the South East Asian nation is apparently weighing heavily in the mind of the Indian leadership as it seeks to increase its engagement with Myanmar, particularly in the vital energy sector and in fighting Indian insurgents operating along the India-Myanmar border.

The two countries signed five accords after talks between Prime Minister Manmohan Singh and the 77-year-old leader of the military ‘junta’. Simultaneously, the EXIM Bank of India extended a line of credit of $60 million to the Myanmar Foreign Trade Bank.

The treaty on mutual legal assistance in criminal matters is expected to help the two countries combat transnational organised crimes, terrorism, drug trafficking, money laundering and smuggling of arms and explosives. The MoU on Indian grant assistance for implementation of small development projects is aimed at boosting Indian investments in energy, transport and infrastructure sectors.

Strategic observers say the change in India’s policy towards Myanmar was prompted by China wooing the military ‘junta’ to make deep inroads into virtually every sphere of Myanmar’s economic activity. Though China has its own strategic interests in engaging the ‘junta’ in Myanmar, the military rulers are worried that their image outside the country is sullied because of its poor record in protecting human rights.

The military ruler wants to correct this image by introducing some kind of democracy. His visit to India was also aimed at gaining global respectability.

Visit of British Prime Minister
British Prime Minister David Cameron came visiting India in July 2010. Talking on terrorism affecting the region, he said that Pakistan could not be allowed to harbour militants and promote terror against India, Afghanistan and the rest of the world. On his first visit to India after becoming Prime Minister in May 2010, he laid out the basis for a new “enhanced relationship” with India. Apart from Cameron’s own tough talk on terrorism, his business minister Vince Cable announced the UK was prepared to export civil nuclear technology to India, bringing Britain in line with the stance taken by the United States, Russia and France.

Travelling to Bangalore and then to Delhi, Cameron signed a Rs 5,082 crore agreement for the Indian Air Force and Navy to buy an additional 57 Hawk Advanced Jet Trainer aircraft from British Aerospace Systems. India and the UK also made announcements in the field of immigration, education and signed an agreement on cultural cooperation.

Cameron welcomed India’s support to Afghanistan, Nepal and Bhutan, its “intellectual leadership” at the G20, and said the time was ripe for India to find a place in the UN Security Council.

Unified Command to battle Naxals
In what is a first step at forming a common strategy for States hit by Naxal violence, the Centre announced, on July 13, 2010, setting up of a Unified Command in Chhattisgarh, Jharkhand, Orissa and West Bengal. Realising that development and action in Maoist areas should be together, the Centre also announced that over Rs 1,750 crore would be spent on developmental projects in the four States.

The Chief Secretary of each State will head the Unified Command, which will have a retired Major-General as its member. The CRPF will depute an IG-level officer for ‘operations’ while an equal rank officer from the State police force will coordinate the entire effort.

The Home Minister said that there was need for a Unified Command only in these four states and Andhra Pradesh, Maharashtra and Bihar had been omitted for the time being.

The Centre has also told the States that the Member-Secretary of the Planning Commission will work to modify existing norms and guidelines to ensure rapid development in the targeted 34 districts: Rs 800 crore will be spent on strengthening police stations and another Rs 950 crore on road connectivity in these districts. The government will fund the establishment and strengthening of 400 police stations in affected districts at the rate of Rs 2 crore a police station on 80:20 basis over a period of two years.

The Planning Commission is also considering a special development plan for the affected districts and States with emphasis on road connectivity, primary education, primary healthcare and drinking water.

Already in force in militancy-hit Jammu and Kashmir and Assam, the Unified Command structure includes Army, paramilitary and State police, who work in coordination. The Army would not be involved in anti-naxal operations for now. However, IAF helicopters would be used for supplies and evacuation.

On July 27, 2010, Reserve Bank of India (RBI) announced a 0.25 percentage point hike in the repo rate (the rate at which it lends to commercial banks), raising it to 5.75 percent, and a 0.50 percentage point hike in reverse repo rate (the rate at which RBI borrows from the commercial banks), raising it to 4.5 per cent. The trigger for hike was a fresh effort to tame high inflation.

Currency option is a derivative instrument that gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date.

INTERNATIONAL AFFAIRS

Cluster ammunition treaty comes into force
A landmark UN-sponsored treaty banning cluster munitions came into force from August 1, 2010, but all major powers, the US, China, Russia, Israel and India have shunned it. The new instrument is expected to be a major advance for global disarmament and humanitarian agenda.

The convention has been signed by 107 States and entered into force six months after 37 countries ratified the treaty, which was concluded in 2008.

Cluster bombs are both air dropped and used by artillery guns, and the shells open before impact and scatter hundreds of shrapnel, causing widespread casualties over a wide area. Many of such ammunition fail to explode and lie dormant for years killing or maiming hundreds of civilians, long after the conflicts have ended.

From Asia only five countries—Afghanistan, Indonesia, Japan, Laos and Philippines—are the signatories.

Global community commits to peace initiative in Afghanistan
An international conference on Afghanistan was held on July 20, 2010 in Kabul, Afghanistan. The international community reiterated its commitment to continue to support peace and reintegration and said it looked forward to the local peace jirgas that included men and women at district and provincial level to discuss elements of an enduring peace.

The government of Afghanistan is to engage with the UN Security Council and the international community for de-listing Taliban elements from the sanctions list in accordance with agreed procedures and common Afghan and international responsibility.

The international community expressed its support for Karzai’s objective that the Afghan national security forces should lead and conduct military operations in all the provinces by the end of 2014.

On the issue of security, the meeting recognised that civilian casualty and protection of civilians are of great concern and noted that most civilian casualties are caused by insurgent attacks. They also reiterated that the international military forces remain committed to the objective of a steady reduction in the rate of civilian casualties.

Kyrgyzstan vote for parliamentary democracy
In a development that could have far reaching political impact in the region, Kyrgyzstan is all set to become Central Asia’s first parliamentary democracy, with an overwhelming 90.55 per cent voters backing a new constitution which strips the President’s wide ranging powers.

After publishing the official results of the June 27 referendum, the Kyrgyz Central Election Commission (CEC), on July 1, 2010, declared Roza Otunbayeva as the transitional President till December 31, 2011.

It also formally dissolved the Presidential parliament, which was in jeopardy in the wake of violent ouster of President Kurmanbek Bakiyev’s regime in April 2010.

In line with the new constitution, the 120-strong Kyrgyz Parliament, after October 2010 elections, will appoint the Prime Minister and the government.

The referendum, the first step towards legitimacy of the present regime, took place in the midst of inter-ethnic violence in the southern regions of Osh and Jalalabad and exodus of hundreds of thousand refugees to neighbouring Uzbekistan.

Fresh US sanctions on North Korea
US Secretary of State Hillary Clinton announced on july 21, 2010 that Washington would impose new sanctions on communist North Korea in a bid to stem the regime's illicit atomic ambitions.

The UN Security Council has imposed stiff sanctions on North Korea in recent years to punish the regime for defying the world body by testing nuclear weapons and long-range missiles, and illegally selling arms and weapons.

With few allies and diminishing sources of aid, the impoverished North Korea is believed to be turning to illicit ventures to raise the much-needed cash. Pyongyang also walked away in 2009 from a disarmament-for-aid pact with five other nations that had provided the country with fuel oil and other concessions.

Pakistan, China ink six pacts
Pakistan and China reiterated their resolve to further strengthen strategic relationship between the two countries, increase the level of economic cooperation and take concrete measures to further bring their people closer, during the visit of Pakistan’s President Asif Ali Zardari to China in July 2010. The two countries pledged to make joint efforts to fight terrorism, and signed six deals of cooperation in the areas of agriculture, healthcare, justice, media, economy and technology.

US slaps toughest sanctions on Iran
On July 1, 2010, even as he signed into law the toughest sanctions against ever passed by the US Congress at the White House, US President Barack Obama said the doors of diplomacy are still open for the regime in Tehran.

The Iran Sanctions Act affects the gasoline, financial, insurance and shipping sectors, among others, as it seeks to impose a heavy economic cost on Iran for continuing with its nuclear programme.

The sanctions bar foreign countries from exporting refined petroleum to Iran, as well as restrict access to US financial institutions for any entities that help Iran’s Revolutionary Guard Corps.

Also, it prevents investment, transfer of technology and development of Iran’s energy sector, and makes it easier for States and localities to divest from companies that do business with Iran.

Apple Computers has emerged as the world’s most valuable brand in the 50 top valuable brand list of the Forbes magazine. Apple was followed by software major Microsoft, Beverages firm, Coca Cola and technology giant IBM. Search engine Google was fifth in the ranking. McDonald's, General Electric, Marlboro, Intel and Finnish handset maker Nokia featured in the top 10 list.

The United Nations decided to observe the first “Nelson Mandela Day” on July 18, 2010, in honour of the Nobel laureate who is regarded as the father of the new South Africa.