Sucheta Dalal :Unlocking value
Sucheta Dalal

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Unlocking value  

Jan 15, 2007

In a booming stock market, “unlocking corporate value” is the new mantra. Now that the National Stock Exchange’s institutional investors have earned a neat packet from their original investment in the hugely profitable bourse, other institutions are examining their options. One of these, we hear, is UTI Asset Management Company (AMC) that runs UTI Mutual Fund. While it is engaged in a quiet tussle with UTI Bank over the use of its brand name, we learn that it is looking at the possibility of listing the AMC. From UTI’s perspective, this may allow some reluctant investors, who came in as part of the bailout plan, to exit profitably. It may also staunch UTI Bank’s reported plans to make a bid to acquire the AMC, since the acquisition of a listed entity is a more cumbersome process. UTI’s funds are not among the best performing ones and one scheme has even managed to lose money in a bull market, so listing the AMC may also be a smooth way of transferring part of the risk from institutional investors to the public, especially when its foray into the more risky area of pension funds for socially weak classes is worrying some of its investors and senior executives.


Stock markets have signalled that the bull run is set to continue in 2007 and India remains a hot investment destination, so companies that missed the fund-raising bus in this time are finally making their move nationally or globally. Some unlocked value through a demerger — to boost market capitalisation without testing if investors have forgotten their past proximity to Ketan Parekh. Others who went on a fund-raising spree in the 1980s and 1990s are following the path carved by Vedenta Resources plc., to image rebuilding. The Essar group, which is currently in the thick of the Hutch deal plans to go global. As part of the plan to delist Essar Shipping, it is mopping up retail holdings by approaching individual investors to part with their shares, say market sources. The next move to list Essar Global and relocate some of its offices to Dubai and Iran may be on hold till the Hutch issue is decided. There is also talk about reorganisation of the family holdings and control over group businesses.

Changing rules

Interestingly, the Finance Ministry as well as SEBI are working at easing the delisting rules for companies, despite the strong and unanimous opposition by all retail investors. If the rules are changed to scrap the reverse delisting rules, several industry groups will want to delist select companies by giving a fixed price option to minority shareholders, based on their past performance rather than future growth opportunity. A powerful corporate lobby working overtime to ensure that delisting rules are made favourable to companies and to also scrap the IPO grading proposal welcomed by investor groups. Both issues are likely to be decided at SEBI’s board meeting later this month. The decision will reveal whether the investor interest is able to overcome corporate clout. Over the last two decades, every big bull market has seen corporate India successfully lobbying for rules that allow them to raise public money more easily. And a debilitating crash leads to instant enlightenment and a pointless rush to bolt the stable doors.

No musclemen

In a double blow last week, the apex court as well as the Delhi consumer court handed out strong rulings against financial institutions hiring musclemen to recover loans from alleged defaulters. In a criminal case filed against ICICI Bank officials, the Supreme Court deplored the practice but insisted that recovery can only be through legal means. Considering that the legal system is excruciatingly slow, this means that a lender may take longer than the tenure of car loan to get the go-ahead to recover it. Consumer lending cannot work that way, this suggests that we may be in for significant changes in financing processes. Lenders will either lobby for special courts to make quick decisions regarding recovery, or will have to pause and focus on customer quality rather than growth targets alone. This may in fact be good news for genuine borrowers, because lenders will value their business a lot more.

Careless consumers

While on consumers, a study by Morgan Stanley Consumer Banking in the UK has warned that “unnecessary risk taking by consumers” could add to the rise in fraud in 2007. This means more headaches for lenders in dealing with the aftermath. The study identified the under-30 group as the careless lot who throw away bank and credit card statements without shredding them. It found that 59 per cent in the under-30 age group would do this as against the overall average of 40 per cent, which is also too high. Surprisingly, under-30s also reuse passwords for bank accounts, Personal Identification Numbers and credit cards. It also found that students are most vulnerable to Identity theft since they often lived in shared accommodation or tend to share personal data openly.

-- Sucheta Dalal