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| 03. INVESTMENT UPDATES |
| Pragati Automation to enter Chinese market |
| Business Standard: January 24, 2011 |
Bengaluru: Bangalore-based Pragati Automation Pvt Ltd (PAL), an Ace Group company engaged in the manufacture of servo drives and motors, is foraying into Chinese market with the setting up of its assembly plant in Shanghai. The company is also expanding its capacities in Bangalore, Belgaum and Kolhapur in Maharashtra. It has drawn up a capital expenditure plan of Rs 50 crore for expansion, a top company official said.
“The demand for machine tools in China is over 50 times than that of India and there is a huge potential for us to manufacture and sell in that country. We have acquired 2 acres land in Shanghai and would start building our factory next month at an initial investment of Rs 15 crore. We will further expand depending on the market demand for our products,” Ashok V Sathe, chairman, PAL said.
It manufactures tool turrets, tool discs and automatic tool changers for machining centres under the brand name ‘Pragati’. Turrets are specialised sub units for CNC lathes. The company would also expand capacities in all its three plants in Bangalore, Belgaum and Kolhapur to cater to the growing demands for its products. Currently, Pragati manufactures 500 turrets and 200 automatic tool changers per month and post expansion the capacity would double for each product, he said.In China, the company would buy castings from the local manufacturers and use it for its products. It will source some of the components from India to manufacture the end products for the Chinese market. “By setting up of a plant in China we want to leverage the low cost advantage for both the Chinese market and Indian operations,” Sathe said.
Currently, Pragati exports 40 per cent of its production all over the world, mainly to Poland, Germany and other European countries.PAL’s in-house R&D division is currently developing CNC controllers, which are imported by Indian industry. The product would be launched by next year, he said. Apart from building a new manufacturing facility in China, Pragati is also setting up a new factory in Belgaum at a four-acre plot on the city outskirts.The total investment would be in the order of Rs 50 crore for all expansion works, Sathe added. The company, which reported a turnover of Rs 40 crore in 2009-10, is likely to register Rs 90 crore by March 2011, showing a growth of 125 per cent over the last fiscal.
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| New RBI framework for investment companies |
| Economic Times: 27 JAN, 2011 |
The Reserve Bank of India Act, 1934, treats a company engaged in acquisition of shares, stock , bonds , debentures or securities as well as a company engaged in the business of loans and advances as a non-banking finance company (NBFC).
However, it excludes an institution whose principal business is that of agriculture activity, industrial activity or sale, purchase or construction of immovable property. Such companies required registration and were subject to the NBFC regulations. This posed genuine hardship for companies that primarily held investments in and/or granted loans to group companies and do not accept public deposits.
New RBI framework for investment companies: The RBI recognised the need for a separate framework for such investment or holding companies and, as such, the regulatory framework for core investment companies (CIC) was issued on August 12, 2010, which are non-deposit-taking and are systemically important. Thereafter, in continuation of the initial framework, the RBI issued the revised regulatory framework for CICs on January 5. These regulations have far reaching implicationsfor all investment companies, and non-compliance with the registration requirements under section 45-IA of the RBI Act shall result in imprisonment for a term in the range of 1-5 years and with fine in the range of Rs 1-5 lakh.
Registration and exemption: The requirement of registration and exemption available under the new framework for investment companies can be depicted in the accompanying diagram. In case an investment or loan company is not a CIC, it would continue to require registration under the new framework as well. Such companies must have minimum net-owned funds (NOF) of Rs 2 crore and comply with other regulatory requirements applicable to NBFCs. Liberalised definition of core investment company warranted: A CIC means a non-banking financial company carrying on the business of acquisition of shares and securities and that satisfies the following conditions as on the date of the last audited balance-sheet:
It holds not less than 90% of its net assets in the form of investment in equity shares, preference shares, bonds, debentures, debt or loans in group companies. n Its investments in the equity shares — including instruments compulsorily convertible into equity shares within a period not exceeding 10 years from the date of issue — in group companies constitutes not less than 60% of its net assets. It does not trade in its investments in shares, bonds, debentures, debt or loans in group companies except through block sale for the purpose of dilution or disinvestment.
It does not carry on any other financial activity referred to in Section 45I (c). It is pertinent to note that the definition of CIC is stringent and may not be fulfilled by many investment companies that primarily hold investments in and/or granted loans to group companies. For instance, a company that has invested in redeemable preference shares or has granted loans to group companies instead of investment primarily in equity shares will not qualify as CIC. As such, the requirement of investment of at least 60% of the net assets in equity shares of group companies needs to be removed. Similarly, the threshold limit of 90% of its net assets to be held in the form of investment inequity shares, preference shares, bonds, debentures, debt or loans in group companies is very steep and should be reduced to 75%. Systemically-important core investment company: Systemically-important core investment company (CIC-ND-SI) means a CIC that fulfils both the conditions vis-à-vis: Having total assets of not less than Rs 100 crore, individually or with group companies inaggregate, and
Raises or holds public funds.
As per the regulatory framework, a CIC that fulfills both the conditions, viz, having total assets of not less than Rs 100 crore, either individually or in aggregate along with other CICs in the group and that raises or holds public funds (which includes bank finance) shall be a systemically-important core investment company (CIC-ND-SI).
Such companies would require registration within six months from the date of the notification, i.e., January 5, 2011.
A CIC-ND-SI needs to meet the specified level of capital adequacy ratio and be within the leverage ratio.
Concluding remarks: The revised framework for investment companies definitely provides clarity and the basis on which a company can be classified into either a CIC-ND-SI or a CIC or an IC.
However, as pointed out above, the RBI needs to relax its conditions that may not be fulfilled by many investment companies even though they primarily hold investments in and/or have granted loans to group companies.
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