Thousands of investors have apparently got over the pain of losing hefty sums of money in the stock market crash of 2008 and are rushing to open demat accounts to make fresh investments. Unfortunately, the quality of many companies with fund-raising plans is rather worrying. The Securities and Exchange Board of India (SEBI) has already barred one such company—Austral Coke & Projects Limited—in the nick of time. The company was assigned a low Grade 2 (indicating below-average fundamentals) when it first went public in August last year. Its connections with financiers and fund managers probably got the issue subscribed.
A year later, SEBI barred the company from raising fresh funds just as it was getting ready to clear a Rs960.22-crore private placement of shares to institutions. SEBI’s action followed the Income Tax Department’s claim that Austral Coke had registered bogus transactions in excess of Rs1,000 crore and the regulator’s own finding that a part of the Rs142 crore raised through its IPO had been misappropriated. While SEBI has ordered an investigation into the securities transactions in Austral Coke, the bigger need is for the regulator to compile a list of investors in IPOs that receive a Grade of 1 or 2. A good idea would be to publish the names of institutions, funds and corporate investors who invest in these issues as well as of financiers who fund their purchases. This information alone would provide significant leads to market manipulation.
Another set of companies confident about raising international funds are the loss-making Kingfisher Airlines and Jet Airways. Vijay Mallya’s Kingfisher Airlines expects to raise Rs500 crore abroad when it is reporting losses of over Rs1,200 crore. Jet Airways is confident of raising $400 million through a private placement with overseas investors. Again, a prudent investor would question why these companies are so confident that a genuine investor would want to buy into loss-making entities when the industry outlook is also not too bright.