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17th September 2021
Good Morning! 

Happy Friyayy!! 
It's been raining here in Delhi over the past few days, so here's a lesser-known fact about those weather apps we all check especially during cricket matches:

The rain percentage that you see isn't the weather app telling you the probability of rain on that day. Instead, it means a certain percentage of the city will definitely see rain—so if you see a 40% chance, it means 40% of the forecasted city will see rainfall.
  MARKETS
 

SENSEX

59,141.16

+ 0.71%

NIFTY

17,629.50

+ 0.63%

US$

73.52

+ 0.03%

GOLD

46,089

- 1.72%

10-YR

6.17%

+ 0.5 bps

OIL

5,353

+ 0.34%

*As of market close

  • Markets: And the party continues! Another record high for Sensex and Nifty as stocks surged yesterday, led by banking and FMCG names. Much-memed ITC was up almost 7%, so you can get a sense of the level of enthusiasm we're seeing.

Banking

Bad Bank Guaranteed


Mr Burns from the Simpsons

Interesting developments in the banking space yesterday - the Finance Minister announced that the government will provide Rs 30,600 crores in guarantees to the National Asset Reconstruction Company Limited (NARCL).

What is the NARCL?

We'll give you The Gyst of it here, but you can read this for a deeper explanation of how it's supposed to work.

The NARCL is being set up as a 'bad bank' that will buy bad or NPA loan accounts from commercial banks for a low upfront price. It will then try to recover as much money as possible from these bad loans while giving banks a clean balance sheet and new business to look forward to. 

How will this guarantee work?

The NARCL will buy loans from banks at a 15:85 ratio.

  • That means they will pay 15% in cash, and the rest 85% will be tied to security receipts which will ensure the banks get paid as NARCL recovers more and more money.
  • The government has basically announced a Rs 30k crore guarantee to back these security receipts.
  • Total loan accounts worth Rs 2 lakh crore have been identified for purchase by the NARCL, and this Rs30k crore covers all of them. It will be paid to cover the difference b/w the face value of the loans and the money realised from the sale of assets.


What's Next?
Once the NARCL is completely set up and has all the licenses needed, it will start buying up bad loans from banks. Accounts worth Rs 90k crores have been identified for phase 1, and these include Videocon Oil Ventures, Amtek Auto, Castex Technologies, Jaypee Infratech and Reliance Naval & Engineering Ltd

Banks have already made provisions for all these accounts, so no more losses will be recorded on their books. 

PS - If you really want to get into the nitty gritty of it, watch this interview video on BloombergQuint.

Corporate

An Inside Job
Homer Simpson Spying

The trend of senior management exits in corporate India continues...
The MD& CEO of Poonawalla Fincorp has resigned as SEBI has accused him of insider trading. 

The Background

Poonawalla Fincorp used to be known as Magma Fincorp a few months ago. Then, India's vaccine king Adar Poonawalla decided to buy the company and change its name.

The alleged insider trading also happened around the time of the takeover, as per SEBI.
SEBI has become quite tech-savvy nowadays, apparently, SEBI officials received an automated alert about possible insider trading in Magma Fincorp's shares in February 2021.

That was when the announcement of Magma being taken over by Poonawalla was made.
The stock then almost tripled from February to mid-March 2021.

The Shady Stuff

As part of the takeover, Magma Fincorp issued preferential shares worth Rs 3,456 crores to Poonawalla. 
This was a large sum, and once the news was announced, it was bound to move the stock price.

SEBI believes that the MD& CEO of the company Ajay Bhutada leaked this info to some people before it was announced to the rest of the world and they then traded based on it to make illegal gains.

The regulator then did some detective work and found out that Bhutada was linked to these people!!
And as you'd expect in insider trading, he had also made money from these trades(shocking, we know).

Everyone involved has been fined a combined Rs 13 crores. They have also been given 21 days to file their replies/objections.

It didn't really take some genius to figure stuff out btw. Turns out, some people who had never traded before suddenly took huge positions in Magma Fincorp's shares just before the takeover was publicly announced.
And then there were phone calls and bank details linking them to the CEO.

Come on guys haven't you learnt anything from the umpteen scams that have happened here!

Disinvestment

Bech De!
Copper

The trend of disinvestment of public sector companies is continuing too!

The government is selling up to 10% in Hindustan Copper Limited via an Offer for Sale.

Deets About Hindustan Copper

As you'd expect, they do deal with Copper. 
The government started it in 1967 since then Hindustan Copper has grown to become the only vertically integrated copper producer in India.
That means they have their own mining operations and also produce finished copper products, along with all the steps in between.

Last year, they recorded Rs 1,787 crores of revenue and a net profit of Rs 110 crores. 
The company has a market cap of Rs 11,300 crores.

The Offer

Unlike in a follow-on public offering (FPO), in which a company can itself raise money by issuing new shares, in an Offer For Sale, only existing shares can be soldThis means all the money from this will go to the shareholders that are selling, and not to the company.
In this case, the selling shareholder is the government.

A floor price of Rs 116 per share has been set - this was a 7% discount to Wednesday's closing price. After the news came out, the stock opened lower on Thursday at ~Rs 116 per share.

If they manage to sell the full 10%, the government will make Rs 1,122 crores, and that would bring their shareholding down to 62.76%.

25% of offer shares have been reserved for mutual funds and insurance companies, and the offer opens for subscription for retail investors today.

The Takeaway

This is the third time in the current financial year that the government is selling shares in a PSU through this OFS method. NMDC and HUDCO were the first and second.

They have to do everything they can to meet the Rs 1.75 lakh crore disinvestment target for the year. Just like we have to do everything to meet our weight loss goals.

Sadly so far none of us are succeeding. The govt has collected Rs 8,369 crores through OFS of NMDC & HUDCO and the Axis Bank stake sale, and we'd rather not talk about our weight loss.

Tech

Tech Bingo
Bingo
 

If you had to make a tech bingo for 2021 stories from The Gyst, what would it be?

  • Ed-tech funding/acquisition
  • A new Indian Unicorn
  • A Pre IPO round of funding.

Pat yourself on the back if you got all 3, as your prize we have all 3 stories in a day.

Byju's Acquiring Again

Byju's just made yet another acquisition. Their 9th of the year!

The latest target is a US-based coding platform for kids called Tynker.

The price isn't confirmed, but Techcrunch's sources say it is close to $200 million.

Tynker teaches kids to code in a way in which we would have loved to learn. They gamify the learning experience.

Now if a kid is really into gaming and is interested in making games or if they are super into cartoons and would like to learn how to make animations, they can use Tynker, which offers specific learning paths related to children's hobbies.

Byju's has already acquired WhiteHat Jr, which is another startup that helps kids learn how to code so Tynker's offering is kind of complementary to that.

Tynker already has 60 million kids using its product, most of them abroad, so the acquisition will also add to Byju's international subs.

Byju's officials said this isn't their last acquisition and that they are also looking to go public but didn't specify the timeline.

Another Unicorn

Frankly, we seem to have lost count of the number of unicorns we've had in 2021 now.
Apna is the latest one to join the club, and in record time too.
They are now India's fastest unicorn, having started in December 2019!

Apna has raised $100 million from Tiger and is now valued at $1.1 billion.

For those of you who can't stop thinking of "Apna Time Aayega", Apna's name is actually inspired by the song!

Like the movie where Ranvir Singh has to fight it out, there are tons of blue and grey collar workers in India who have to really fight it out to get any opportunities. Apna plans to help these guys.
They've built a one-stop place where workers such as drivers, delivery persons, electricians, and beauticians can find new jobs and upskill themselves. There is also the community angle in the app, so important tips etc. can be shared amongst people from the same profession.

Apna now has 16 million users in just 15 months. They haven't monetized their platform so far but are now looking to do that.

And to complete the third piece of The Gyst's Tech Bingo 2021 - Pine Labs has just announced a $100 million pre-IPO fundraising round.

On a Lighter Note

If you have more time ...

The Gyst - Weekly Quiz


Here's some exercise for your brain over the weekend:

All of the questions are related to the business stories you've read in our newsletter over the past few weeks. We hope you enjoy it! 

Click here to test yourself

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