Sucheta Dalal :IPO ratings
Sucheta Dalal

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IPO ratings  

Apr 16, 2006

Last week, a pink paper reported that the government and the Ministry of Company Affairs (MCA) had shot down the Securities and Exchange Board of India’s (Sebi) proposal to have Initial Public Offerings (IPOs) rated. This is interesting, because the Finance Minister has often agreed that IPO ratings would be a useful investor protection tool. Is he now influenced by his bureaucrats, or by corporate India, which is clearly uninterested in any grading or rating process? Consider the facts: The Finance Ministry apparently decided that IPO ratings will drive up the cost of public issues. Untrue. Rating agencies have repeatedly quoted a fairly nominal fee for these ratings and they will be largely based on the offer document or prospectus, which has to be comprehensive. Even that fee was to have come from Investor Education and Protection Fund (IEPF), which has Rs 350 crore of investors’ unpaid dividends, and barring three or four projects merely spends the money on advertisements and seminars. Moreover, it is the IEPF committee that first proposed IPO ratings, but after long discussions and meetings with the rating agencies, the move was dropped without explanation since a former Secretary of the Ministry of Company Affairs (MCA) apparently developed cold feet and raised vague fears of litigation by companies. In any case, the two national stock exchanges were to fund a pilot rating project of 10 issues which has also made no headway for over a year. Meanwhile, the quality of issues waiting to raise public funds is fast declining while their pricing is unrealistically linked to the galloping Sensex.


Pension pioneer


While the Pension Regulatory Development Authority (PRDA) shows no signs of taking off, UK Sinha, Chairman of UTI Mutual Fund, who was once tipped to be part of the PRDA has launched a ‘micro-pension’ initiative for women in the unorganised sector. Structured in collaboration with Shree Mahila Sewa Sahakari Bank (SEWA), the scheme was launched by the Finance Minister who hailed the effort as a revolution that would pave the way to pensions for workers in other unorganised sectors such as daily wage workers and vegetable vendors. Buoyed by FM’s support, Sinha promises to extend the scheme to a million low-income workers across the country. The scheme gets women with income as low as Rs 800 a month to invest small amounts to the UTI-Retirement Benefit Pension Fund until the age of 55 and allows them to draw the pension after 58. The test of this scheme will be to convince largely illiterate workers of the benefits of steady, long-term investment and on how it deals with occasional defaults, when these unorganised workers are unable to pay due to genuine difficulties.


Missed trip


Last week, David Leppan, CEO of World-Check, had to skip Mumbai to go straight to London, ditching a seminar he was committed to address when he discovered that his six-month multiple entry visa had lapsed. A frequent global traveller, Leppan is used to long duration visas and forgot to check. This often happens to business persons visiting India. India hardly has any reciprocal relationships with countries to waive visa requirement; so everybody travelling to India requires a visa. However, while most business-savvy countries, including the US offer long duration visas, extending up to 10 years to business persons, the frequent complaint is that India usually hands out six month or one year visas. London-based Leppan discovered the lapsed visa in Singapore but a renewal was not possible because the Embassy was closed for one of the many Indian holidays. Wouldn’t the ‘Incredible India’ experience have worked far better if it went beyond beautiful advertisements and worked on introducing ‘visa on arrival’ at least for business persons and tourists from friendly countries?




Nalwa Sons Investments Ltd (NSIL) a holding company of the O P Jindal Group which owns shares of Jindal Strips and Jindal Stainless, recently tried to allot 15% of its equity to 17 employees (of which 16 were freshly recruited) at Rs 10 a share against the prevailing market price of Rs 365. The move was stayed by the Company Law Board in March on the complaint of minority shareholders. These shareholders allege that the intrinsic net worth of the shares is around Rs 1,700 each. This means that 16 brand new employees of a shell company received a bonanza of nearly Rs 100 crore. The shares now trade at over Rs 400. The shareholders allege that they did not receive notice of the general body meeting that passed this resolution. Details communicated to the stock exchange are also very sketchy. They merely say that the Employee Stock Purchase Scheme was passed with some modifications at the AGM on October 13, 2005. The same investors have also complained to capital market regulator. With 42.5% of the shares held by the public, Sebi needs to examine the composition of both promoters’ holding and the public shareholding which seems to be concentrated in a set of investment companies. A larger question is whether such shell companies with no business should be listed on the bourses at all?



-- Sucheta Dalal