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Public issues, labour laws and more...

Jan 4, 2008

  • With the likes of Reliance Power seeking newspaper headlines for its gigantic offering in the primary market and others like the Future Group and Oil India lined up in close proximity, public issues and IPOs are the order of the day. Given that most of the recent issuances have managed to list at a significant premium (in the range of 50% to 100%), whether or not the same is warranted, media coverage of the same is justified. Another issue that is expected to find sizeable space in the pink papers in the coming months will be banking behemoth SBI's rights issue. The government has approved to increase the number of paid up shares of the bank from 526 m to 650 m. Going by this, we estimate the rights issue multiple to be 1:5 (1 share allotted for every 5 shares held by investors).
  • China has introduced a new labor law that enhances rights for the nation's workers, including open-ended work contracts and severance pay. Higher costs may drive manufacturers with low margins out of China, dampening investment in factories that helped push inflation to a 10-year high. Olympus Corp., the world's No.4 digital camera maker, and Yue Yuen Industrial (Holdings) Ltd., the biggest maker of shoes for brands such as Nike Inc., are among companies shifting some production to Vietnam to cut costs. The Labor Contract Law aims to improve job security for workers, making open-ended terms of employment for those who have completed two fixed terms. The legislation limits overtime, sets minimum wages and guarantees one month's pay for each year worked for sacked employees. The higher employee cost that will be the fallout of this legislation may cease China's distinction of being one of the lowest cost manufacturers in the world.


  • Back home, the Government of India has constituted a Committee on Estimation of Savings and Investments under the Chairmanship of Dr. C. Rangarajan, Chairman of the Economic Advisory Council to the Prime Minister. In the light of the higher growth trajectory of the economy, the committee will undertake a critical review of the available estimates of domestic and national savings and investment in the economy. Further, it will examine the feasibility of directly estimating household savings through integrated income and expenditure surveys and also design superior procedures for estimation of corporate investment and savings as well as savings in the farm sector.


  • At a time when Brent crude prices are hovering near the US$ 100 per barrel mark, domestic oil marketing companies like Indian Oil, BPCL and HPCL are planning to open over 3,000 outlets in 2008. Even losses of over Rs 3 bn per day from selling automobile fuels have not stopped government-owned oil marketing companies from expanding their retail network across the country. Not only is the number of outlets to be added higher this year, the marketing losses (under-recoveries) are also projected to be higher, at around Rs 690 bn as against Rs 490 bn in 2007. The marketing businesses of oil retailers are suffering losses as they are forced to sell petrol, diesel, LPG and kerosene at subsidised prices. This is despite the fact that the demand for these products is growing at a healthy rate of about 8% per annum. The average throughput of petrol per outlet per month has more than halved to around 70 kilolitres now from 160 kilolitres in 2003. Oil retailers are also looking at revenues from non-fuel retailing, such as FMCG products and grocery sales at their outlets.

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