Sucheta Dalal :Soaring PNs
Sucheta Dalal

Click here for FREE MEMBERSHIP to Moneylife Foundation which entitles you to:
• Access to information on investment issues

• Invitations to attend free workshops on financial literacy
• Grievance redressal


You are here: Home » Column Topics » Indian Express - Different Strokes » Soaring PNs
                       Previous           Next

Soaring PNs  

Mar 26, 2007

When it comes to protecting foreign investment through Participatory Notes (PNs), even national security takes a back seat. These derivative instruments allow those who are otherwise ineligible to invest in the Indian stock market. The National Security Advisor recently claimed that terrorist groups were profiting from India’s powerful bull run by investing through non-transparent Participatory Notes (PNs). A little later, we were told of the stupendous wealth of Hasan Ali Khan, an alleged hawala operator based in Pune who had managed to fly under the evasion detection techniques of the tax department for several years. Later, former BJP parliamentarian Kirit Somaiya alleged that Hasan Ali Khan was linked to two Union ministers. But his party, too, seems reluctant to follow up on this sensational allegation and has moved on to more routine protests against Special Economic Zones. Somaiya now provides statistics to show that no matter all the controversy, investment through PNs rose 80 per cent in 2006 from Rs 117,325 crore to Rs 202,487 crore. So much for our avowed concerns about transparency, customer identity and national security.

Convoluted structure

The twists and turns in the holding pattern of Stock Holding Corporation of India (SHCIL) and its subsidiaries continue to unravel and confound. SHCIL Services Ltd (SSL), a brokerage entity registered with the Bombay Stock Exchange (BSE) is 76 per cent owned by private entities, but still claims the parent SHCIL as its promoter. We now discover that the parent is also the sub-broker (or dependent) of SSL following a registration granted by the regulator on 18th May, 2006. Apparently neither the stock exchange nor the Securities and Exchange Board of India (Sebi) found it necessary to demand a separation of ownership and infrastructure. Since very little information about SSL is publicly available, we went into its history. It was registered in February 1995 as Depository Company of India Ltd, a fully owned subsidiary of SHCIL, was renamed National Depository Corporation of India Ltd in June 1995. It was renamed SHCIL Services Ltd for which SHCIL has quietly diluted its shareholding down to a mere 24 per cent. Of the private holding, we learn that Vaishnav & Co of Ahmedabad holds 33 per cent, while E-Ventures Capital Pte Ltd of Singapore owns another 33 per cent. Dr V Subramanian, a Hyderabad based individual who owns a distillery company, holds a 10 per cent stake as well. We learn that there has been some change in the Singapore-based holding recently. Will SHCIL's major shareholders, IDBI, LIC and IFCI explain why SSL did not go for a transparent dilution through a public offer for such a drastic dilution of equity into private hands? In fact, the Registrar of Companies does not have clear information either. Is the regulator asking any questions?

Rumbling discontent

The Memorandum of Understanding between PricewaterhouseCoopers (PWC) and RS Mama (RSM) for a proposed merger of their tax and audit business has run into a spot of trouble, say informed insiders. Although Ashok Wadhwa of Ambit would still walk away with Rs 40 crore out of the total deal size of around Rs 80 crore, it is the integration of RSM’s team into PwC that is getting sticky. Sources say that PwC Global is reluctant to fund the acquisition and PwC India may then have to pay the tab from the Indian entity's books — but this would mean that the RSM team would have ended up paying for their own acquisition. Worse, RSM is apparently prevented by newly framed governance rules from putting up a candidate for either Partner Oversight Board (POB) or Senior Partner election. Those who have been elected to the POB include Sanjay Hegde, Sharmila Karve, Bimal Tanna of Mumbai, Rahul Mitra, Raja Sengupta of Kolkata, Jayanta Mazumdar of Bangalore and Vivek Mehra. Delhi has been routed with three persons losing out. Our sources say that both sides are working hard to find solutions and ensure smooth integration. Among them is Ashok Wadhwa, who is probably the biggest gainer in the deal even if he walks away alone.

Certify users

The drop in long distance telecom charges, access deficit charge and roaming charges ought to have caused jubilation among telecom users. Instead, check various internet meeting spaces and you will only find anger at the manner in which telecom companies are continuing to harass customers and disconnect phones over the customer verification process mandated by the telecom regulator.

Clearly, private telecom companies did not bother to retain accurate records at the customer acquisition stage, so they are demanding resubmission of identity and residence proof from all users. While this may be a short cut to full compliance for the telecom providers, some consumers believe it raises worries about information security. After all, somebody must be held accountable for safe-keeping of information time. Parvinder S Arora, a reader, suggests that one solution could be for telecom companies to issue their subscribers a formal certificate confirming the name and address of the subscriber so that any duplication of access can be easily detected. Is Trai listening?

-- Sucheta Dalal