How scamsters vanish, and make comebacks, but the market regulator will do nothing Sucheta Dalal
It can only happen in India. Companies that escaped punishment in older scams, continue to be involved in new mischief or dirty deals. Consider this. The Essar group has achieved the most amazing financial turnaround in Indian corporate history—or so we thought. Yes, public sector banks and financial institutions, helped fund the Ruias’ massive business empire and wrote off a few thousand crore rupees when they landed in a financial mess caused by reckless borrowing and ill-timed rampaging growth. Then Essar hit the jackpot with investment in telecom (Vodafone) and reaped stupendous returns without having to build or run the business. Again, greed got the better of them and, today, the story of Loop Telecom’s dubious strategies to bag scarce telecom spectrum is as bad as the Anil Ambani group’s Swan deal. It is only pure luck that only a few players are behind bars and not others. Reliance is another example. We have often written about how Reliance group companies have been repeatedly let off by regulators over the decades. Consent orders and settlements are a handy tool for them.
Another notorious company back in the limelight is GTL and its sister company GTL Infrastructure (earlier Global Tele-Systems Ltd). Like most of the K-10 companies, which were named in the Joint Parliamentary Committee report that investigated the Ketan Parekh scam, GTL also escaped regulatory action, changed its name, restructured and resurfaced several years later. A little over a year ago, The Economic Times celebrated the return of Manoj Tirodkar, GTL’s promoter and a close buddy of Ketan Parekh, with a front page report. SEBI (Securities and Exchange Board of India), under chairman CB Bhave did nothing—after all, the Zee group was let off with a mild warning and Himachal Futuristic Communications Ltd paid a minuscule Rs10 crore under a consent order.
GTL powered ahead; it acquired Aircel’s towers in June 2010 and announced plans to merge with Reliance Infratel. It also went on a borrowing spree in India and abroad. The tower deal fell through in September 2010. In India, companies sometimes announce mega-deals and foreign investments to boost stock prices or to facilitate fund-raising. When the deal is eventually called off, it is impossible to prove wrongdoing. Was it the case here?
The sudden and extraordinary 62% fall in GTL’s stock price and 43% in GTL Infrastructure on 20th June ought to trigger a serious investigation. If the promoters, who hold over 50% of the equity, insist there was no sale of pledged shares, then what provoked the fall? Will SEBI’s expensive market surveillance system ever yield results? Or will it be another slow investigation that, ultimately, leads to a consent deal and small penalty?