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China looks overseas in bid to slim down bloated steel sector

By David Stanway and Ruby Lian

BEIJING (Reuters) - As part of efforts to ease domestic steel and coal overcapacity, widely blamed for triggering a global industry crisis, China said it will do more to help its firms shift capacity overseas while keeping tight control on adding new capacity at home.

A joint statement issued by the central bank and several other government bodies on Thursday said China would strengthen financing support for enterprises going out, and use loans, export credits and project financing to encourage coal and steel businesses to build capacity abroad.

At the same time, it would strictly control credit available for new capacity additions in China.

It was unclear whether this signals government encouragement for more coal and steel exports from China, which has been widely blamed for dumping its excess steel on world markets, depressing prices and threatening thousands of jobs. Beijing says it has done what it can on overcapacity, and the criticism is lazy protectionism.

Earlier this week, China and other major steel producers failed to agree on measures to tackle the overcapacity crisis, prompting the United States, European Union and others to call for urgent action.

I am cautious about Chinas move to shift overcapacity overseas as this doesnt help, and just replaces exports, said Jiang Feitao, a steel researcher with the China Academy of Social Sciences.

Japan, another big steel producer, expressed concern over rising Chinese crude steel production and exports.

Were not sure if the rise is because of a recovery in demand after Chinese New Year or resumptions of production by local mills in the face of higher steel prices. We need to closely look at Chinas output and exports in April, Koji Kakigi, chairman of the Japan Iron and Steel Federation, told a news conference in Tokyo.

ZOMBIES RETURN

While China has engineered some steel capacity cuts, its efforts risk being undermined by a sharp rise in domestic steel prices that has seen mills ramp up output. Even zombie mills, which had stopped production but were not closed down, have been resurrected.

Chinese steel prices have risen by 77 percent so far this year, as supplies tightened following plant shutdowns last year, consumers restocked and seasonal demand picked up.

On Thursday, steel futures in China jumped nearly 9 percent to their highest since September 2014. The price of rebar used in construction for October delivery on the Shanghai Futures Exchange rose to as much as 2,787 yuan ($430) a tonne. Iron ore futures on the Dalian Commodity Exchange also rose to 19-month highs.

Steel product inventories held by Chinese traders have fallen by more than a quarter from last years levels, said Helen Lau, an analyst at Argonaut Securities. Therefore, we are of the view that steel prices may extend their rally through to the second quarter.

SERBIA BUY

Chinese steel firms have already ventured abroad, building plants in South Africa and Eastern Europe.

Hebei Iron Steel Group this week signed a 46 million euro ($52 million) deal to buy a loss-making Serbian steel plant, and pledged to invest $300 million in the plant, which employs more than 5,000 workers.

China plans to shed 100-150 million tonnes of domestic crude steel capacity in the next five years, and another 500 million tonnes of surplus coal production, in a bid to tackle huge capacity overhangs that have saddled domestic firms with losses and debts.

The government has earmarked 100 billion yuan ($15.45 billion) to handle layoffs, and is promising measures to deal with the debt problem.

Thursdays statement said the government would speed up the handling of non-performing loans in the debt-ridden sectors, and extend direct financing to support their restructuring. It would also work to deal with possible default risks in the two sectors.

Banks would use a wide range of methods, including debt restructuring and bankruptcy settlements, to handle the problem, it said.

(Additional reporting by Manolo Serapio Jr in MANILA and Yuka Obayashi in TOKYO; Editing by Ed Davies and Ian Geoghegan)



L&T Finance Group net up 15% on retail & wholesale advances

Leading non-banking lender LT Finance Holdings today reported a 15 per cent rise in consolidated net profit at Rs 237 crore for the March quarter, driven by retail and wholesale advances.

Income from operations grew 19.77 per cent to Rs 1,957.96 crore in the fourth quarter ended March 31, while total disbursements jumped 20 per cent to Rs 10,688 crore, Chairman and Managing Director Y M Deosthale told reporters.

While retail credit grew 16 per cent to Rs 7,284 crore, wholesale advances rose 29 per cent to Rs 3,404 crore.

For the full year (2015-16), consolidated net expanded 16 per cent to Rs 857 crore from Rs 736 crore, while total advances grew 22 per cent to Rs 57,831 crore from Rs 47,232 crore in the previous year. This is despite the company moderating its growth in farm equipment business due to challenging environment in this sector.

On a standalone basis, however, the net income plunged 91 per cent to Rs 16.17 crore for the quarter due to fall in income and increase in expenses, down from Rs 190.07 crore in the year-ago period.

Total expenses rose to Rs 10.12 crore from Rs 8.86 crore, while income declined to Rs 37.3 crore from Rs 198.3 crore in the same period a year ago.

Despite adverse market conditions, the company could improve its asset quality with net NPA coming down marginally to 2.05 per cent from 2.10 a year ago.

Total assets under management grew 15 per cent to Rs 25,945 crore from Rs 22,497 crore, while the share of equity assets soared 41 per cent of the total AUM at Rs 10,316 crore, representing a 20 per cent increase annually, Deosthale said.

There is a stress in rural and retail space, especially in rural areas. On the whole it was a difficult year for the farm sector, Deosthale said, adding, however, they saw growth in the infrastructure space, especially on operational projects and renewable energy sector.

Asset quality in the infra space has been reasonably good, except for a small account that went in for restructuring during the year, he said.

According to Deosthale, growth was led by healthy loans to key focus areas, including operational projects in renewable energy and roads, apart from housing, microfinance and two-wheeler loans.

Operational projects account for 61 per cent of the total loans outstanding in the wholesale business, while B2C products constitute 61 per cent of the total loans outstanding in the retail business, he added.

Going forward, Deosthale said the company will further strengthen its position in operational infra projects in renewable and roads, structured corporate finance and retail products like funding tractors and two-wheelers as well as microfinance and housing.



Tobacco farmers seek withdrawal of larger warnings on products

Tobacco farmers body Federation of All India Farmer Associations (FAIFA) today hit out at the governments order for larger pictorial warning on tobacco products saying it has been implemented without giving a fair chance to the process of legislative review.

Stating that shutting down of cigarette factories have put extreme stress on tobacco farmers, FAIFA urged the government to withdraw the order that requires 85 per cent of pictorial warning on packets of tobacco products, while asking the industry to resume production

The decision of the Ministry of Health Family Welfare to implement 85 per cent warnings on tobacco products from April 1, 2016, without giving a fair chance to the process of legislative review to get completed is going to put extreme stress on tobacco farmers who have no other alternative means of livelihood, FAIFA Vice- President G S Rao said in a statement.

FAIFA, which claims to represent two lakh farmers who grow tobacco used for making cigarette besides others who are into plantation of palm oil and chilli, said the continued closure of tobacco products manufacturing is creating panic among the community as Rs 700 crore of bank loans outstanding with farmers are under risk.

Rs 1,200 crore of unsold tobacco crop lying in Telangana and Andhra Pradesh alone, it said.

According to the association, auction for Flue Cured Virginia (FCV) tobacco, a variety used in cigarettes started in early March, 2016 in Telangana and Andhra Pradesh, which have started to witness fluctuating the backdrop of closure of manufacturing units.

This crisis has come at the worst time as this is peak season for tobacco farmers to sell their tobacco crops, FAIFA said, adding demand from international buyers has been extremely poor.

FAIFA President B V Javare Gowda said: Already the Indian farmer community is facing severe challenges with water crisis, slower demand, expensive credit and the ongoing tobacco industry closure will leave a big financial hole for farmers.

At this juncture, when we were totally dependent on domestic buyers for selling our produce, a sudden closure of manufacturing has come as a big blow. Farmers will never be able to recover from this loss, unless Government does something urgently.

From April 1, major cigarettes manufactures including ITC, Godfrey Philips and VST have decided to shut their factories and stop manufacturing in the wake of larger pictorial warnings.

Last week, beedi manufacturers across India has also joined them by stopping their production.



Bank stocks gain after RBI issues instructions on trading in priority sector lending certificates

Ten bank stocks gained 0.01% to 1.17% at 11:00 IST on BSE after the Reserve Bank of India issued instructions on trading in priority sector lending certificates (PSLCs).

The Reserve Bank of India issued the instructions after market hours yesterday, 7 April 2016.

Meanwhile, the BSE Sensex was up 25.77 points, or 0.1%, to 24,711.19.

Among public sector banks, Punjab National Bank (up 1.17%), Bank of Baroda (up 0.17%), State Bank of India (SBI) (up 0.77%), Union Bank of India (up 1.16%), and Canara Bank (up 0.66%) gained. Bank of India was flat.

Among private sector banks, HDFC Bank (up 0.18%), ICICI Bank (up 1.52%), Kotak Mahindra Bank (up 0.17%), Yes Bank (up 1.1%), and IndusInd Bank (up 0.01%) edged higher. Axis Bank dropped 0.9%.

While releasing the instructions, S S Mundra, Deputy Governor, Reserve Bank also launched a platform to enable trading in the certificates through its core banking solution (CBS) portal (e-Kuber). All scheduled commercial banks (including regional rural banks), urban co-operative banks, small finance banks (when they become operational) and local area banks are eligible to participate in the trading.

Four kinds of PSLCs, namely, PSLC-agriculture, PSLC-small marginal farmers, PSLC-micro enterprises and PSLC-general can be bought and sold via the platform. The certificates will have a standard lot size of Rs 25 lakh and multiples thereof. There will be no transfer of credit risk on the underlying and the settlement of funds will be done through the e-Kuber portal. The detailed user guidelines for trading on the platform are also available on the portal.

The Reserve Bank of India had comprehensively revised the priority sector guidelines in April 2015 which provided for the introduction of PSLCs as a mechanism to incentivise banks having surplus in their lending to different categories of priority sector. On lines of carbon credit trading, the goal of PSLCs is to allow market mechanism to drive priority sector lending by leveraging the comparative strength of different banks. For instance, a bank with an expertise in lending to small farmers can overperform there and get benefit by selling its over performance through PSLCs. Another bank that is better at lending to small industry can buy these certificates while selling PSLCs for micro enterprise loans.

The BSE Bankex had outperformed the market over the past one month till 7 April 2016, gaining 0.98% compared with 0.16% decline in the Sensex. The index had, however, underperformed the market in past one quarter, falling 3.42% as against Sensexs 0.67% fall.

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