Mumbai: Shree Ganesh Jewellery House India Ltd, an Indian jewellery maker backed by Credit Suisse Group AG, plans to sell commercial paper for the first time in more than 18 months as curbs on gold-import financing increase working capital requirements.
add_main_image“Shree Ganesh Jewellery House plans to raise cash in the next two months after regulators this month banned the use of credit to buy the metal,” said Praveen Gupta, general manager for bullion at the Kolkata-based company, 4.94% owned by a unit of Credit Suisse. Three-month commercial paper rates have increased 20 basis points since touching a two-and-a-half-year low of 8.33% on 21 May, data compiled by Bloomberg show. The rate on top-ranked Chinese notes rose 104 basis points in the same period.
“The working capital needs of jewellers will definitely increase,” Gupta, whose company imports up to 70 tonnes of gold each year, said by telephone on Tuesday. “Whether you’ll be able to pass on that interest cost is a big question.”NextMAds
Titan Industries Ltd, the nation’s biggest jeweller by market value, expects the industry to take on more debt after the Reserve Bank of India (RBI) ruled buyers can only take delivery against cash deposits equivalent to the value of their shipment. The measures came after finance minister P. Chidambaram partly blamed a passion for gold for a record current-account deficit and sold inflation-linked bonds to damp demand for the metal as a hedge against consumer-price gains.
‘Smart ways’
“The intention of the government is that imports have to be curbed, and it has begun to work,” Bhaskar Bhat, Bangalore-based managing director of Titan, said on 12 June at a conference in Mumbai. “Jewellers will have to find smart ways of getting consumers to recycle their gold.”
Shree Ganesh is the only major Indian jeweller to issue commercial paper in the last two years, according to data compiled by Bloomberg. The company last sold ₹ 5 crore of 87-day notes in December 2011 at an interest rate of 13%, after raising ₹ 150 crore in February the same year at 10.75%.
Credit Suisse PE Asia Investments (Mauritius) Ltd was the company’s fifth-biggest shareholder as of 31 March, data compiled by Bloomberg show. Managing director Umesh Parekh and Chairman Nilesh Parekh held the largest stakes of 24.25% and 20.37%, respectively.
The yield on Gitanjali Gems Ltd’s bonds maturing June 2014 climbed to 9.51% from a record-low of 9.16% on 28 May, the data show, as the world’s largest gold-buying nation increased a tax on bullion imports and imposed restrictions on financing shipments.sixthMAds
Import duty
The government raised the import duty to 8% from 6%, revenue secretary Sumit Bose said in a 5 June interview in New Delhi, as gold’s slump to a two-year low in April boosted demand for the metal and jewellery. Prior to that, India had tripled the tax since January 2012. The central bank placed restrictions on overseas purchases on a consignment basis and limited imports for local consumption against cash only.
The measures are likely to drive out thousands of small jewellers who’ve relied on the credit system to fund purchases and aren’t big enough to tap debt markets, Venkatesh Babu, president of the Jewellers Association of Bengaluru, said in a 14 June telephone interview. The group represents more than 1,200 jewellers in Karnataka.
Prince Gem and Jewelry Pvt. Ltd, which runs four stores in southern India, will take on short-term bank loans for working capital using property and other assets as collateral, chairman and managing director Princeson Jose said in a 14 June telephone interview from Chennai.
Rupee slump
The rupee slumped to a record low of 58.9850 per dollar on 11 June as the currency is vulnerable to a record current-account deficit. The shortfall in the broadest measure of trade was $32.6 billion in the three months ended 31 December, or 6.7% of gross domestic product, and is the biggest risk to Asia’s third-largest economy, according to RBI.
Gold imports surged in the past two months as buyers thronged shops for ornaments, coins and bars after bullion entered a bear market in April. The drop in prices came after investors sold the metal in favor of riskier assets on speculation that the global economy is recovering.
“The import curbs may not significantly dent gold demand in India as the metal’s use is deeply rooted in the nation’s culture and tradition,” said Prem Hinduja, chief executive officer of Tribhovandas Bhimji Zaveri Ltd. The company, which according to its website runs 26 stores across India, gets two-thirds of its sales from wedding-related purchases, and that demand is unlikely to shrink, he said.
‘Gold in DNA’
“Seeing the way the Indian consumer is, and gold being in their DNA, demand doesn’t come down because these restrictions are put,” Hinduja said in a 14 June telephone interview from Mumbai. “The company’s costs would go up by about 4% if bankers seek full down-payment for bullion shipments,” he said.
Ten-year government bond yields in India have climbed 17 basis points from a 44-month low of 7.11% reached on 24 May as the rupee’s losses threatened to make imported goods costlier and spur inflation. The yield on the 7.16% note due May 2023 rose 3 basis points to 7.28% on Tuesday, while the rupee lost 1.5% to 58.7725 per dollar, data compiled by Bloomberg show.
Bond risk in India has surged as the currency weakened. The cost of insuring the debt of government-controlled State Bank of India, considered a proxy for the sovereign, using five-year credit-default swaps climbed to 230 basis points on 17 June from this year’s low of 174 on 17 May, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in privately negotiated markets.
“The pace of borrowing by gold-related companies from the short-term debt market, especially commercial paper is likely to go up,” Arvind Konar, head of fixed income at Almondz Global Securities Ltd in Mumbai, said in a 14 June interview. “These companies may also have to pay a slightly higher rate as there may be a sudden surge in supply.”
Catch all the Corporate news and Updates on Live Mint. Download The Mint News App to get Daily Market Updates & Live Business News.