Sucheta Dalal :Low grading
Sucheta Dalal

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Low grading  

Mar 19, 2007

At a time the Securities and Exchanging Board of India (Sebi) board members are also waffling over the issue of introducing mandatory IPO grading, Orbit Corporation was bold enough to opt for it. Contrary to the confidence that this move suggests, the issue got the lowest possible grade — 1 out of 5. Sebi had assigned the grading exercise to Care. Sebi rules mandate that if a company opts for voluntary IPO grading, it has to disclose it in its prospectus and advertisements, but Orbit failed to do either. Sebi has now asked the lead manager, Edelweiss, to correct the omission.

The Rs 106 issue to fund realty projects opens on March 20. Interestingly, this is not the first time that Sebi has had to make Orbit disclose all the relevant facts. Earlier, following omissions in its red herring prospectus, the regulator asked the company to “include full details of the raid/ search and seizure, including details of seizures, voluntary disclosures made, if any, during the raid and also to include a suitable risk factor effect in the document”. Incidentally, on a day when the market crashed over 453 points, only a few Indian realty stocks had magically bucked the trend, although the realty bubble has begun to unravel globally.

SHCIL’s proliferations

The Bombay Stock Exchange website lists SHCIL Services, a brokerage firm, as promoted by the Stock Holding Corporation of India (SHCIL). However, the parent informs us that SHCIL Services is not a subsidiary. True. It is not any more. Sources in investigation agencies reveal that 76 per cent of the equity has passed into private hands but there is no public disclosure of shareholding by this large public entity. In fact, a search of the Ministry of Company Affairs (MCA) website reveals that SHCIL has quietly spawned five new entities.

The oldest of these is SHCIL Commodities and Derivatives Trading incorporated in 1995. The rest have been floated in the last six months and most have some mysterious private share holdings. For instance, SCHIL Hannobe Technologies Pvt Ltd, based in Kerala, was registered on 22nd February, 2007. SHCIL Projects Ltd and two individuals — Pradeep Kumar Karunakarn (Kerala) and Vishwanathan Lakshmnan (Mumbai) — are shown as shareholders of which the latter was investigated in the scam of 2000. A noting says, “though the name availability form shows SHCIL Value Infosolutions Pvt Ltd as promoter”, it is not listed in the form filed at the time of incorporation.

Then there is SHCIL Project Limited, registered on 10th August, 2006, at Chennai. SHCIL holds 7 lakh shares of the company, SHCIL Services holds 2.5 lakh shares and another 2.5 lakh shares are held by some G K Management Services (India) Ltd. Curiously, SHCIL Projects Limited also figures on the MCA website under the Mittal Court, Nariman Point, head-office of SHCIL. SHCIL Value Infosolutions was promoted on 9th August, 2006, in Chennai with T Kannan Jagan and Indira Jagan of Chennai as directors. Again, the government website says that Value Software Technologies Pvt Ltd is the actual promoter, but subscribers to the Memorandum and Articles of Association are individuals. Does Sebi at least know SHCIL’s grand gameplan?

Fertiliser plea

Yet another example of the vast chasm between reality and government rhetoric about support for agriculture is in the desperate plea by the fertiliser industry over looming shortages. The demand-supply gap is expected to widen to 16 million tones since no new capacity has been added for over a decade. Yet, the finance minister in his Budget speech laid great emphasis on the 4 per cent growth target for agriculture.

While the industry remains smothered by red tape and regulation and, according to the association, is owed Rs 15,000 crore in outstanding subsidy dues, it is a safe to bet that India will opt for large-scale and expensive imports after the imminent furore over shortages. But it is not as though the government wasn’t warned about the impending situation. Prof M M Sharma, a member of several high powered government committees and task forces, as well as Padma Vibhushan awardee, has repeatedly warned about the imminent fertiliser shortage; he had also pointed out that even if fresh capacity is sanctioned today, it will be a couple of years before it would augment availability.

Bearish outages?

Last Friday marked the fifth consecutive week when the markets closed in negative territory. Coming as it does after a three-year monster bull run, investors and retail speculators are spooked by the high volatility as well as the sharp decline in share values.

However, market veterans who have been in the market for decades have another untested and unverified theory. According to them, every time the Indian bourses have been forced to interrupt trading due to “sun outages”, the market gets the jitters and share prices fall. A sun outage is an interruption or distortion in geostationary satellite signals caused by interference from solar radiation. It affects satellite signals and occurs during the equinoxes (February-March and September-October).

This phase of interruptions ends on March 19. Believers and disbelievers can figure out whether “sun outages” dictate market volatility more than global financial trends.

-- Sucheta Dalal