Unit Trust of India (UTI) chairman M Damodaran has said that there will be no large sell-off of equity holdings by the Trust. Damodaran’s statement is fine as a reassurance to investors in order to avoid panic in the market, but what else can he sell? UTI has several unlisted companies, which it can get rid of without any impact on the market. For starters there is UTI’s large holding in Infrastructure Leasing & Financial Services (IL&FS), which it has been trying to divest or reduce for a long time. Then there is Stock Holding Corporation of India (SHCIL), UTI Bank and the National Stock Exchange (NSE) and finally, there is this large amount of real estate that UTI claims to hold. The apparent advantage of these investments is that the other shareholders are also financial institutions and theoretically they should be willing to increase their holdings. On the other hand, barring the NSE, (which had declared a handsome 30 per cent dividend this year) in none of these are companies, UTI’s co-shareholders may be willing to buy out UTI’s holding without some ‘persuasion’ by government.
As brokers get ready for a nationwide strike today the cross-currents and uncertainties below the surface are intriguing. First, there is the emergence of Deena Mehta as the brokers’ leader following in the footsteps of her erstwhile mentor MG Damani. Senior brokers noted that Mehta seems more than willing to match her mentor in belligerence. There is however a serious flaw with the rhetoric and the timing. For one, the capital market is not in the same stage of development that it was during Damani’s hey days. Though trading volumes have shrunk and brokers are struggling to grapple with Options & Futures, the broking community is squarely in the midst of a massive stock scandal and in no position to make any threats. Some of the most respected names in the business have complaints against them for failing to return vyaj badla shares and they have recently lost an eight-year battle over turnover fees, which they took all the way to the Supreme Court. In the circumstances, Mehta’s statement that the absence of deferral products would lead to illegal margin trading and unofficial market (she told a television channel that the Calcutta Stock Exchange was an example of the malaise) is unlikely to be well-received by the regulator or the finance ministry. Also, nobody quite understands why the big two bourses are making common cause with the hopeless efforts by the small regional bourses to retain status quo.
Last week, Wall Street Journal reported that global stock brokerage firm Merrill Lynch agreed to pay up a hefty $400,000 to settle a case with a former client and investor, Debasis Kanjilal who said he was mislead by analyst Henry Blodget’s “buy” recommendation on InfoSpace. The investor had complained to the New York Stock Exchange (NYSE) that Merrill had held on to its ‘buy’ recommendation in order to support a financial deal for Merrill and that he had lost $ 500,000 by following the advice. Merrill said it was settling the case in order “to avoid the expense and distraction of protracted litigation”, but the case establishes what is otherwise common knowledge in the marketplace that Chinese Walls among the large capital market related institutions are so thin as to be non-existent.
Bullish on steel
Loans to steel companies account for the highest component of non-performing assets (NPAs) among financial institutions but they continue to find reasons to fund the industry. The latest annual report of Bhushan Steel & Strips Ltd, a favourite of ICICI Ltd says that it has been sanctioned a Rs 175 crore term loan to finance its Rs 486 crore Cold Rolling Galvanising complex at Khopoli, Near Mumbai (Maharashtra). In addition, ICICI had also released a Rs 90 crore term loan “to support the cash flow for normal capital expenditure and term working capital requirements”. If that were not enough, ICICI extended a revolving line of credit of Rs 35 crore and foreign currency loan of $25 lakh to help it “take advantage of lower interest rates”. When asked, ICICI had once said that unlike the other steel companies, Bhushan was not in danger of becoming an NPA but what about the general depression and glut in the steel industry?
Packer Off: Australian magnate Kerry Packer is certain to hate this, but despite the huge media splash and hoopla he made in this country, most politicians, barring a JPC member and few others, cannot even get his name right. Questions by the JPC members have various spelt Packer’s name as KD Pecker or Cary Pecker. All they are interested in is his connection with Ketan Parekh and a certain company called Himachal Futuristic, which apparently had attracted the canny Packer’s attention.