Tata Mistry Split & More

Will he, won’t he? Will he win the elections or will he not? And if he does not, will he even accept the results at all or will he remain committed to making a mockery of democracy. Ah well, no easy answers with our chap Donald. As he keeps us guessing, let’s move on to things that did happen in the world of business last week.

MAIN STORIES

Is it Tata for Mistry’s?

We know, we know the headline is a tad confusing but that’s what happens when the story is still in a phase of developing further. But it is quite clear that what started with the ouster of Cyrus Mistry as group CEO is seeing season two as India’s biggest business groups  – Tata Sons and Shapoorji Palloonji are all set to part ways after a seven decade long legendary partnership.

What’s buzzing? As reported last week, Shapoorji Palloonji has defaulted on a payment to their group company Sterling and Wilson. Simultaneously, they were contesting the stay on pledging their stake in Tata Sons. On Tuesday, SP group finally released a statement claiming this ain’t working any more and they would want to sell off their 18.4% stake (which they valued at Rs. 1.8 trillion) and exit the Tata group completely. All indications point to this being one messy divorce.

What are the options? Considering the sizeable value of the stake looks like Tata Sons would need to scramble around and buy it back themselves. How do they do that? This Quint article lists out their options quite well. Tata Trust or any other subsidiary is not allowed to purchase the shares. The second option is to raise funds by selling shares in companies like TCS where Tata Sons holds a 72% majority. Three, look for a patchwork of investors made popular by RIL. Now it remains to be seen which path do the Tatas walk on and what trade-offs seem palatable to them as then untangle themselves from this mess.

Three Little Farm Bills

If there was a history book of momentous things made for 2020, it would be one fat tome. Adding to it, PM Modi walked over all possible opposition in an attempt to completely change the farming supply chain in the country. Leading to obvious furore.

Farm bills primer: “Farm bills” is a blanket term being used for three bills passed last week. Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Bill allows the agrarian community to sell their produce beyond the designated APMC and mandis, even outside state borders. The biggest fear here is the abandonment of MSP or Minimum Support Price while embracing market pricing. Farmers (Empowerment and Protection) Agreement on Price Assurance and Farm Services Bill allows farmers to get into contracts with agribusiness partners for pre-determined prices, whereby marginal farmers can gain by aggregation. Essential Commodities (Amendment) Bill removes some important commodities including pulses and potatoes from the label of essential commodities, effectively lifting stockholding limits and open potential doors to hoarding.

What’s all the fuss about? After independence India started out as mainly a socialist country with the state taking care of and employing most citizens. With liberalisation in 1991, while some of the stranglehold was lifted important aspects like managing agrarian livelihood was kept with the state. These three new bills open the doors to unfettered capitalism in agriculture – be it through lower market prices or enabling a possibility of hoarding.  While there is support for the bill from some quarters, there are also widespread protests in the fear that these bills will accentuate inequality. While big farmers will be able to benefit well, it could end up further squeezing the marginal farmers. But then, many a slip between a bill and it’s implementation. Only time will tell.

Electrifying developments at Nikola

While not much recognised in his lifetime, in current times Nikola Tesla’s legacy as celebrated by two of the biggest electric vehicle manufacturers. While Tesla is known to all, Nikola was touted as the next big thing considering it’s strides in the electric trucking field. Last week though, the story has undergone massive changes.

Some background: The Nikola stock got listed on June 4th and quickly raced to $79 a share, valued higher than Ford. Earlier this month, General Motors announced a deal to buy 11% stake to get a piece of the electric vehicle pie. That’s when the cookie crumbled as (ironically) a short selling firm Hindenberg Research published an investigative journalism style report titled – Nikola: How to parlay an ocean of lies into a partnership with the largest auto OEM in America.

Fraud allegations: The main allegations levelled are against Nikola founder and chairman Trevor Milton and a massive house of lies. There is an impressive list including lying about the extent of their proprietary technology, staging a video of a Nikola truck cruising on a hill, not having an basis to their claims of battery production, no ownership of any hydrogen yielding infrastructure as well as cooking up their order books. Of course, the stocks went down to a historic low of about $16 before the speculators came sniffing to take it up to the current $19.  As for Trevor Milton, he has resigned and as per latest reports is also now off Twitter.

IN SNIPPETS

Reliance Retail up for (piecemeal) grabs: Now that all possible pieces of Jio seem to have been carved up and sold off, Reliance Retail is the new meat on the shelf. Global investment firm KKR has announced a plan to invest Rs. 5,500 Crore for a tiny 1.28% stake in the company.

Harley Davidson exits India: Now if you spot a Harley bike in India, you can be sure it’s an imported one. As part of it’s new global restructuring plan, codenamed Rewire, the company has been looking to consolidate it’s product line and operations. India is one of the countries where after 11 years of struggle to get a foothold, the company has decided to exit.  

Bankruptcy suspension for three more months: Bankruptcy filings in India continue to be on hold now till December 2020. This has been done to give a better buffer to businesses suffering from the Covid crisis, as they find better means to pay repay their borrowings.

Winter Covid support plan: As the country battles a fresh surge of cases, UK Chancellor of the exchequer Rishi Sunak unveiled a new winter plan for government support to jobs and businesses. It replaces the furlough with aiding salaries for shorter hours, “pay as you grow” repayment plan for small businesses to cover their state backed loans and continuing with a lower VAT for the hospitality sector.

Payback for money laundering: Westpac, one of Australia’s biggest banks has admitted to breaking the anti-money laundering and terrorism financing laws a whopping 23 million times! As pay back, they will be coughing up a record breaking 1.3 billion AUD.

MARKET PULSE

Who asked for more excitement in the markets? Okay fine, we are guilty of it. We were now a little bored of the snail-like movement that the markets were displaying. This week markets were happy to prove us wrong by going all in the red.

So why are the markets jittery? Well, the one thing investors are wary of is uncertainty and we are back in that terrain. Cases are rising, stimulus does not seem to be coming through, US elections are approaching, US dollar is getting stronger and we have no idea which way to the shore. Hence, we see global sell-off leading to Indian sell-off as well. And markets were pretty democratic when it came to being in the red with the fall showing in all assets except USD.  

WILD CARD

Sometimes marketeers are too creative for their own good and forget where the boundaries of sensitivity get blurred and breached. Hongkong based cosmetics brand Woke Up Like This or WULT recently launched a “Face Dab” collection of liquid blushes. One of those, namely “Dream like Anne” was named after well-known teen holocaust victim Anne Frank. After the obvious furore, better sense prevailed and the product was pulled out.

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