Larsen & Toubro to retire debt-Satyam Plans strategy for next growth phase.
L&T to retire Rs 400cr debt, Value Bonds
larsentoubro.com
Yassir A Pitalwalla
MUMBAI 13 JUNE
LARSEN & TOUBRO (L&T) plans to retire nearly Rs 400 crore of high cost debts in a bid to pare its interest costs. During 1998-99, L&T's interest costs (Rs 161 crore) were up 116 per cent over the previous financial year. The engineering giant plans to prepay $15-20m of its forex borrowings during the current financial year and also redeem Rs 300 crore of its ‘value bonds'. The value bonds, which were issued in 1995-96, carry an interest rate of 16-16.5 per cent. The bonds will be redeemed in October.
Speaking to The Economic Times, L&T director (finance) Y M Deosthalee said, L&T would seek to prepay some of its forex loans which have been contracted at an average rate of London Inter-Bank Offered Rate (Libor) plus 50 basis points.
“We would prefer to raise domestic resources at close to 11 per cent rather than avail of forex borrowings and run an exchange risk,” Mr Deosthalee said.
L&T is also exercising the call option for its bonds. With interest rates ruling easy, the company can finance the redemption of bonds by a fresh issue at an interest rate at least 3 per cent below that offered on the ‘value bonds'.
L&T is also planning to prepay some of its high cost debt contracted locally, provided the prepayment penalty is not too high. It has also decided to reduce its reliance on public unsecured fixed deposits (FDs) which involve high administrative costs. FDs constitute less than 5 per cent of L&T's total borrowings.
“L&T will approach the market in the near future with debt issues for tenures ranging from 5-10 years backed by innovative structures,” said Mr Deosthalee. Until recently, L&T was issuing instruments with a maturity between three to five years which it wants to lengthen to an average maturity of seven years.
According to Mr Deosthalee, out of five infrastructure projects being executed by L&T, project financing for two has already been tied up. The total cost of these projects is expected to be around Rs 1,300 crore.
According to L&T sources, the additional debt being contracted is likely to result in its debt-equity ratio moving up from 0.75 to one. This is in keeping with its strategy of reducing its overall cost of capital by leveraging its net worth.
According to senior L&T officials, this has helped the company reduce its overall cost of capital by 1.5-2 per cent over the past three years. They add, while the company added an incremental Rs 400-500 crore worth of debt, a major portion of the increase in interest expenditure for financial year 1998-99 is because of L&T's two million tonnes per annum (mtpa) Tadpatri cement plant in Andhra Pradesh and its captive 50 MW power plant for its 2.9 mtpa cement plant at Awarpur in Maharashtra, being commissioned.
economictimes.com
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Satyam plans strategy for next growth phase
satyam.com
satyam.net.in
Sanjeev Sharma
NEW DELHI 13 JUNE
SATYAM Computers has put in place a multi-pronged strategy for its next phase of growth, including strategic partnerships with US software companies through equity tie-ups, setting up two wholly owned subsidiaries in the US for exclusive marketing of its new global software products and focus on e-commerce and Internet applications as growth areas for the future.
Also, Satyam Computers may consider a further divestment in its Internet venture, Satyam Infoway, if it is unable to raise funds required for its expansion in the future.
Srini Raju, executive director of Satyam Computers, told The Economic Times that Satyam is looking at opportunities for strategic partnerships with US-based software companies.
He said Satyam is willing to join such software companies for expanding its reach in the US market and software development. It would negotiate board representation in such equity tie-ups, but not necessarily management control of the company. A final decision on these partnerships will be taken in the next one to two months.
However, Mr Raju ruled out outright acquisitions of well-performing software companies in the US as it is a very expensive proposition and Indian software companies cannot afford it. Thus, Satyam has decided to limit its exposure to strategic partnerships, he said.
As an interesting global strategy, it has also set up two wholly owned subsidiaries in the US named after its global software products — VisionCompass Inc and Dr Millenium Inc. These have been established in the US for marketing these products at a global level and also named after these products.
Mr Raju said there is better acceptance for software companies and products based in the US. Satyam feels that since they are global products, there are better chances of getting quality feedback in the US and also help in product development. Mr Raju said there is a trend whereby even European and Israeli companies are setting up entities in the US to gain more acceptability. This also takes care of some of the perception issues regarding the technology emerging from the country of origin.
On Satyam Infoway, Mr Raju said that a future divestment by the Satyam group would depend on the funds required for growing the business. Mr Raju said Satyam will not compromise on growth and if enough funds are not available within the group, then somebody else will grow the business. But it will not let paucity of funds be an obstacle in its growth. It already has 60,000 subscribers for its Internet services.
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