Rana Kapoor’s companies used borrowed money to invest in private finance firms: Report

Yes Bank co-founder Rana Kapoor’s investment companies may come under the lens of investors and even regulators for reportedly using borrowed money from mutual funds and invested the same as equity in a finance company through a questionable transaction.

Rana Kapoor’s Yes Capital borrowed funds from the market, a part of which was invested in ART Capital, which subsequently invested a portion of that in ART Housing Finance through subsidiaries, The Economic Times reported.

The investment of debt as equity to ART Capital is reflected in Yes Capital’s balance sheet, sources told the paper, adding that the ultimate beneficial ownership of both companies is with YES Capital, which also owns shares in Yes Bank

RV Verma, non-executive director of ART Housing Finance, said Yes Capital is the ultimate owner of the finance company. “The business is done at an arm’s length from Rana Kapoor and Yes Bank,” he added.

Analysts deem the transaction irregular but not illegal, saying it does question the use of investor money and shows an attempt to disguise debt as equity. No law restricts this move but it is not considered a good practice by regulators and risk managers.

According to Yes Capital’s annual reports, nearly Rs 697 crore of the company’s Rs 712 crore investment went to ART Capital, and Rs 350 crore of that money went to ART Housing Finance.

“ART Housing Finance is funded by money raised by Mr Kapoor’s family through privately owned firms which have raised funds with Yes Bank as security,” the report said.

Yes Capital infused Rs 697.6 crore into ART Capital last fiscal as ‘non-current investments’, way more than Rs 140.4 crore a year ago. The company raised Rs 630 crore by selling non-convertible debentures to mutual funds during the year.

Raakhe Kapoor Tandon, daughter of Rana Kapoor, is a director on the board of ART Housing Finance. The company lends to customers from low and middle-income groups.
Verma said the finance company’s growth is visible in the past one year, especially due to government’s Pradhan Mantri Awas Yojana. He is expecting capital investment from promoters this fiscal.


Cancer drug company Tesaro shares rise 39% following report that it will explore sale

Tesaro exhibit booth 

Tesaro shares soared as much as 39 percent Friday upon a Bloomberg report that the pharmaceutical company will explore the opportunity of a sale.

This comes exactly one week after the cancer drug company fell more than 20 percent during after-hours trading after the release of drug trial results for treatment of small cell lung cancer. A spokesperson declined to comment.

The company is working with financial advisers to examine the deal, and the company could still remain independent, the Bloomberg story said. The financial advisers also have contact other potential buyers.

Tesaro also explored a sale in May 2017, but it did not come to a close. Shares then fell more than 11 percent during that time.

The company was founded in 2010 and went public in 2012. Its first drug, Varubi, was approved by the US Food and Drug Administration in October 2015. It’s used to treat chemotherapy side effects, such as nausea and vomiting. It’s other cancer drug Zejula has been struggling.

Shares are down 68 percent this year.


October’s jobs report was perfect for everyone, except Wall Street

Job growth powers aheadOn Friday, the government delivered a nearly perfect jobs report.

More than 200,000 Americans a month on net are finding jobs.

The 3.1 percent year-over-year increase in wages is the best since April 2009, just a few month before the U.S. escaped the throes of the Great Recession.

While that’s a victory for workers, whether it indicates something bigger about inflation is what has Wall Street unnerved.

Wage gains don’t generally cause inflation, but they could be symptoms that pressure is brewing.

“At some point the market has to accept that what is good for Main Street is also good for Wall Street,” said Quincy Krosby, chief market strategist at Prudential Financial. “But that mantra changes if it puts too much pressure on margins and at the same time forces the Fed to see galloping inflation on the horizon. That makes for a much more aggressive Fed.”

Indications that the central bank might be more hawkish than Wall Street thought helped ignite an October sell-off that pushed the S&P 500 down nearly 7 percent for the month.

The market took Friday’s news about wages fairly well initially. However, premaket gains quickly evaporated in good part due to negative sentiment off Apple’s earnings after the close Thursday.

Government bond yields did rise in a move that would be consistent with higher inflation expectations.

The connection between rising wages and inflation and the Fed’s response was noted around Wall Street.

“Federal Reserve concerns about inflation will only grow as a result of labor market news this week,” said Gad Levanon, chief economist for North America at The Conference Board. “They will be more determined to continue raising rates to slow down growth and prevent labor market conditions from causing the economy to overheat and inflation from exceeding the bank’s target.”

As things stand, the Fed expects to back up December’s rate hike with three more in 2019 and another increase or two in 2020. While traders in the fed funds futures market have largely priced in the December increase, the market is implying just two moves next year with the central bank pausing after that.

President Donald Trump has criticized the Fed and its Chairman Jerome Powell multiple times in recent months, insisting that interest rate hikes are the biggest threat to U.S. economic growth. GDP rose 3.5 percent in the third quarter, and the Atlanta Fed expects another 3 percent quarter to close the year.

The Fed has no interest in pushing the economy into a slowdown, but members have been vocal that they don’t want to get behind the curve and have to tighten too quickly. They’ve also stressed that policy could change as conditions evolve in a different direction than the current path.

“The economy remains healthy as Chairman Powell pointed out and won’t buckle under despite President Trump’s criticisms. However, there are clouds on the horizon including home sales and capital spending,” said Sung Won Sohn, president at SS Economics. “The global economy, both Europe and Emerging markets, is slowing. The strong dollar is playing havoc with their external debt-service burden. The policy is data driven and the course could change.”