Finance subsidiary is first out of L&T cradle

When the monolithic AT&T was carved up into eight companies in 1984, the original ‘Ma bell’ gave birth to seven subsidiaries called ‘baby bells’. These seven subsidiaries became leaner, more efficient machines and went on to outperform the parent company and the broader market.

On Thursday, Indian monolith Larsen & Toubro (L&T) announced the initial public offer (IPO) of one of its babies — L&T Finance Holdings — atRs51-59 a share.

Expectations are history will repeat itself.

“It is always good to separate your son and allow him to grow in a free environment. Making it independent will be a positive and help the company grow better,” said D D Sharma, vice-president - retail research, Anand Rathi Financial Services.

“Such cases have often resulted in value unlocking in the case of other corporate. This is a trend, which is expected to repeat itself for L&T Finance,” said John Perinchery, senior analyst at Asian Markets.

Analysts are also drawing parallels with Reliance Industries —- ironically a company that attempted to take over Larsen and Toubro during the time of Dhirubai Ambani in the late 1980s and early nineties. After Dhirubai passed away, the brothers Anil and Mukesh Ambani split their empire in 2006 when the total market capitalisation of the group was Rs1.58 lakh crore. The subsequent listing of spin-offs and value unlocking that followed has resulted in the capitalisation of the two brothers to increase to Rs3.64 lakh crore today.

In addition to the potential for value-unlocking, L&T’s listings are also because the company is becoming unwieldy, say analysts.
L&T has 10 operating divisions, including engineering, ship-building, information technology, power and railway projects.

“The company is becoming too big to handle and difficult to value as well,” said one analyst, seeking anonymity.

The first of the issues will be open from July 27-29, with the main institutional investors, called anchor investors, coming in on July 26.

The company will raise Rs1,245 crore through the issue which will result in a dilution of up to 17% in the stake of the parent company.

“The share price of Larsen and Toubro includes a valuation of Rs.118-137 for L&T Finance. The spin-off could result in a growth in the business which could also positively impact the share-price of the parent company as well,” said Deven Choksey, managing director at K R Choksey Securities.

L&T Finance had raised an additional Rs.330 crore by a pre-IPO placement of shares with Capital International at a share price of Rs55.

The total Rs1,575 crore is lower than the planned Rs1,750 crore, a reduction which is said to be based on weak market conditions. 
The proceeds of the IPO will be used to repay a Rs345 crore debt from the parent company as well as infusion of capital into the asset and infrastructure financing companies of Rs515 crore and Rs485 crore, respectively.

There is a Rs50 crore reservation for employees, who will be given a Rs2 discount on every share. There is an additional reservation of Rs120 crore for its shareholders.

The two rating agencies, which graded the IPO, have both given it a grade of 5, indicating strong fundamentals.

The merchant bankers involved in the issue are JM Financial Consultants, Citigroup Global Markets, HSBC Securities and Capital Markets, Barclays Securities, Credit Suisse Securities and Equirus Capital.

L&T has four subsidiaries, which are into asset financing, infrastructure financing, a mutual fund business and an infrastructure developer which has been set up to focus on working capital financing for corporate borrowers.

The next subsidiary in line for a listing may be L&T Infrastructure Development Projects Ltd (L&T IDPL), which develops roads, bridges, ports and other infrastructure, and might just have the scale required for a listing, said R Shankar Raman, senior vice-president, Larsen and Toubro.

“We could see a listing from the company over the next 12-24 months,” he said.

L&T has come a long way since its two founders set up base in an office so small that only one of them could use it at a time. Henning Holck-Larsen and Soren Kristian Toubro, school-mates in Denmark started the company in 1938.

Lenovo Jumps into Tablet Market: 10 Features They Need to Succeed

Lenovo is the latest company to jump into the tablet fray with its ThinkPad and IdeaPad K1 tablets. The company also unveiled its P1 Windows 7-based tablet, but this column will only focus on the prospects for the Android models.
At first glance, the ThinkPad and K1 are quite similar, offering 10.1-inch screens, Android 3.1 and the 1GHz Nvidia Tegra 2processor. However, the ThinkPad option is designed for enterprise users, while the K1 is made for consumers.
By joining the tablet space, Lenovo is now going up against Apple and the countless number of Android tablet makers out there. Now Lenovo, like all the others that came before it, will need to find a way to differentiate its products and appeal to customers who might not want to buy an iPad.
Admittedly, doing so is difficult in today’s crowded tablet space. The chances of Lenovo overcoming even the Galaxy Tab 10.1 to earn the second spot in the tablet space behind the iPad 2 are slim. But it doesn’t mean it’s impossible. With the right strategy and a few tweaks, Lenovo’s tablets have a chance at becoming a success.
Read on to find out what Lenovo should do to make its K1 and ThinkPad tablets successful.
1. Focus on the screen size
One of the major advantages of Lenovo’s tablets is their screen size. According to the company, both the ThinkPad tablet and the K1 offer 10.1-inch screens. The iPad 2, on the other hand, comes with just a 9.7-inch display. The difference might not be great, but in both the consumer and enterprise markets, larger screens are preferred. Lenovo must keep that in mind and make that a key component in its marketing.
2. Android 3.1 is integral to success
If Lenovo’s tablets shipped with Android 3.0, they would be failures out of the gate. But by offering Android 3.1, the tablets are on the same level as the Galaxy Tab 10.1, which also runs the operating system. Google’s first foray in the tablet space with Android 3.0 was a bit of a misstep, but most critics agree that version 3.1 is a fine improvement. Lenovo should make it clear to customers that unlike some other Android tablets, its products are running the best version yet of Google’s tablet platform.
3. A clear delineation
By selling two tablets, Lenovo is putting itself in an unenviable position. Rather than simply try to make customers get excited about a single tablet, the hardware maker must try and sell two different products aimed at two separate markets. In order to be successful at that, Lenovo needs to make it abundantly clear to customers that the ThinkPad is for businesses, and the K1 is for consumers. They should also be different enough to convince a tablet buyer that they should buy two tablets, one for their home and another for the office. If they seem too similar, Lenovo’s tablets could have trouble finding a suitable marketplace.
4. Talk about pricing
According to Lenovo, it’s selling the K1 tablet for just $499 for 32GB of storage. Apple’s iPad, on the other hand, retails for $599 for the same amount of storage. The company’s 16GB model goes for $499. That is a major selling point for Lenovo. As the economy still continues to struggle to turn around, consumers looking to get a tablet want the best value for their cash. Making them aware of its K1 pricing might help Lenovo appeal to those customers.

FOREX-Euro rallies on Greece deal, US debt impasse hurts dollar

 Euro-zone deal seen as bolder than expected

* Focus shifts to US debt ceiling talks

* Dollar/yen hits 4-month low, limited by intervention fear

* Kiwi hear 30-year high, Canadian dollar at 3 1/2-year high

SYDNEY/TOKYO, July 22 (Reuters) - The euro rallied to a two-week high against the dollar in Asia on Friday after euro-zone officials gave their financial rescue fund sweeping new powers to solve Greece's debt troubles, easing fears the country's debt crisis would spread.

The dollar was punished across the board as the encouraging news out of Europe contrasted with confusion over how much progress Washington is making to avoid a U.S. default.

"Europe has made a big stride after all while the U.S. is still dragging its feet on the debt ceiling. That's why the dollar is under pressure now," said a dealer at a Japanese bank in Tokyo.

Markets cheered the package as it was far more ambitious than expected earlier this week. The euro climbed to a two-week high of $1.4440 EUR=before steadying around $1.4390.

The euro is around the level of the 50 percent retracement of its decline from early May until last week, in which worry about the euro zone debt crisis played a big role.

European leaders have agreed on a bailout package that would make it easier for Greece to reduce debt more sustainably by easing terms of loans and by making Greek bond investors shoulder some of the burden. [nL6E7IK2VL] [nN1E76K237]

The leaders also made provisions for limiting the damage if, as seems likely, credit rating agencies declare Greece to be in temporary default, with the European Central Bank now dropping its opposition to a selective default of Greek debt.

The region's rescue fund, the European Financial Stability Facility, will be allowed to buy bonds in the secondary market if the ECB deems that necessary to fight the crisis.

Euro bears say it is yet to be seen if the measures can stabilise other indebted countries and stave off contagion to the currency bloc's bigger economies.

Still, it was enough to prompt short-covering in the euro.

"It's probably not a long-term solution but it provides some clarity ... At the end of the day it doesn't address key issues, but it will contain contagion," said Grant Turley, a strategist at ANZ in Sydney.

The common currency could target around $1.4455, where charts show an Elliot wave equality target as well as the top of the Ichimoku cloud, and then $1.4520, a 61.8 percent retracement of its decline since May.

Implied volatilities on euro/dollar options dropped as fears receded that disappointment over the summit could pummel the euro. One-month volatility EUR1MO= fell to around 12 percent from above 13 percent before the summit.

The single currency also rose to around 1.1765 Swiss francs EURCHF=R, 3.5 percent above the record low of 1.1365 francs hit at the start of the week.

DOLLAR INDEX BELOW TRENDLINE

As the euro recovered, the dollar index .DXY wallowed near a six-week low after posting its biggest daily drop of the year on Thursday.

The index stood at 74.096, near Thursday's low of 73.889, having clearly broken below its trendline support since May.

The U.S. currency also slipped to a four-month trough of 78.22 yen JPY=, the lowest since joint G7 intervention in mid-March, before recovering to 78.58 yen.

Still, few traders think Japan is ready to intervene in the near future, in part because the yen is still off recent peaks against most currencies except the dollar.

Japanese margin traders have a huge long position in the dollar, which means any intervention would likely only invite their profit-taking and have a limited impact.

Pricing of dollar/yen options also suggested limited expectations of Japan's intervention with scant demand for yen puts, whose value would gain sharply in the event of yen selling intervention.

Their risk reversal spreads, which measure the price gap between yen calls and yen puts, rose to the highest level in favour of yen calls, pointing to limited demand for yen puts.

That contrasts with the days following Japan's intervention last September, when many market players bought yen puts for hedging.

While enlivened risk appetite after the euro-zone debt deal and the entrenched perception that U.S. monetary policy will remain loose for the foreseeable future are the main damper on the currency, some traders say the dollar was not helped by uncertainty over wrangling in Washington on the debt ceiling.

While efforts to craft a $3 trillion deficit-reduction deal gained traction on Thursday, the White House and Republicans have not broken their impasse over higher taxes, which are opposed by the Republicans, who control the lower house.

Although most market players expect some sort of deal by the Aug. 2 deadline to raise the $14.3 trillion debt ceiling and avoid default, some worry that failure to reach a major deficit reduction plan could lead to a credit downgrading.

WRAPUP 1-US debt talks begin critical phase

WASHINGTON, July 22 (Reuters) - Efforts to avoid an unprecedented U.S. default enter crunch time on Friday, with President Barack Obama and top lawmakers engaged in a sometimes chaotic drive to strike a sweeping deficit-reduction deal.

With the clock ticking toward an Aug. 2 deadline to raise the U.S. debt ceiling, Obama and the senior Republican in Congress, House Speaker John Boehner, worked toward a plan that could include up to $3 trillion in spending cuts but might leave tax reform for later, congressional aides said.

The main obstacle remained the issue of tax increases that Obama's Democrats demand and Republicans vehemently oppose. There were conflicting accounts of how and when higher revenue might kick in, and the White House vowed there would be no deal without this.

Negotiations have whipsawed between competing and even conflicting options, and leaders on both sides face resistance within their own ranks to some ideas now gaining traction.

"There will be plenty of haggling over the details of all these plans in the days ahead," Obama said in an appeal for compromise in a USA Today opinion piece. "But right now, we have the opportunity to do something big and meaningful."

The focus is on what congressional sources say is shaping up as a wide-ranging package of deficit cuts over 10 years, something many in Washington hope will help save America's triple-A credit rating. Rating agencies have threatened a U.S. bond downgrade without a comprehensive deficit-cutting deal.

Negotiators have struggled to break their impasse and winnow options for raising the government's $14.3 trillion debt ceiling. Failure to reach a deal to increase U.S. borrowing authority would render the world's biggesteconomy unable to pay all of its bills. <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Full coverage of U.S. budget and debt [ID:nUSBUDGET]

Possible outcomes for U.S. debt talks [ID:nN1E76I10Y]

Anything possible if U.S. downgraded [ID:nN1E76I1M8]

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But confusion has grown amid a patchwork of proposals aimed at finding what a senior Democratic aide called the "magic formula" for resolving the crisis, which has dominated Washington's agenda for weeks.

BIPARTISAN RESISTANCE

"Frankly, we've looked at a half a dozen fallback plans, none of which are all that appetizing," Boehner -- struggling with Tea Party lawmakers largely opposed to any compromise with Obama -- told conservative talk-show host Rush Limbaugh.

Some Democrats have complained about what they see as Obama too willing to make concessions on social spending cuts and unhappy if he agrees to no immediate tax increases.

A gathering of Democratic congressional leaders at the White House late on Thursday was meant to not only inform them of developments but to possibly placate their concerns.

Friday is essentially the start of crunch time. The White House initially set a July 22 target for a deal that would leave enough time to get it through the legislative process. But it has backed off that timeframe in recent days with both sides still far apart on the issues.

If Congress fails to raise the debt ceiling in time, the United States would default on its obligations, possibly plunging the country back into recession and sparking a crisis in financial marketsworldwide.

White House spokesman Jay Carney said earlier there had been momentum toward a "balanced" deficit agreement, but he insisted: "We are not close to a deal."

Despite the gulf between the two sides, reports that negotiators were starting to close in a debt deal helped fuel a rally in U.S. and world stocks on Thursday.

What remained clear was that both sides at still at odds over the thorniest issue on the table -- taxes.

Obama told National Public Radio any deal must include some tax increases alongside defense and other spending cuts. Many Republicans vow to oppose any tax hikes, while most Democrats insist on higher taxes for wealthier Americans.

While they could leave comprehensive tax reform for later, Obama and Congress could agree to revenue increases that would end some select tax breaks, such as special breaks enjoyed by ethanol blenders, some Wall Street investors and companies that operate corporate jets, congressional sources said.