Sucheta Dalal :Smart shareholders (17 August 2003)
Sucheta Dalal

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Smart shareholders (17 August 2003)  

Shareholders who own 23.64 per cent of Sterlite’s equity have turned out to be the smart guys. The share price touched Rs 370 last Friday and has been recording hefty trading volumes. This is over twice the price that Sterlite had offered as its buyback offer last June. Sterlite was then willing to pay Rs 100 in cash plus five non-convertible debentures of Rs 10 each redeemable after four, five and six years. Investors refused to tender their shares, and since the public shareholding remained above 10 per cent, the company remained listed on the BSE (the scrip is not listed on NSE).

Shareholders were angry that Sterlite was offering far too little for its shares. Its earlier buyback offer in the second quarter of 2000-01 has been at Rs 200 a share, but that too failed to attract much of a response. After the second offer, Sterlite’s public share holding dropped from 57 to 23.64 per cent. For those who held on to their shares, it has turned out to be a clever move. Although the price began to move sharply up from around Rs 164 in early June, accompanied by high-trading volumes, it is difficult to believe that retail investors alone are running up such high volumes. Maybe the company is finding it convenient to be listed on the bourses during the bull market.

Managing assets?

As far as the stock market is concerned, the regulatory action against Samir Arora has had no impact at all. But what about Alliance Mutual Fund? A couple of days after the Sebi action, an Alliance spokesperson insisted that the fund has only seen a withdrawal of Rs 3 crore.

However, a leading stock exchange is understood to have withdrawn Rs 10 crore from the fund, immediately after. Although Sebi makes it mandatory for mutual funds to declare the NAV of all their schemes on a daily basis, they don’t have to declare the Assets Under Management (AUM) on a daily basis. If UTI’s US-64 scheme were publishing its AUM in April 2001, investors would have figured out that most large banks and institutions were making good use of their insider knowledge to withdraw several thousand crores of rupees at the peak NAV of Rs 14.75 and they would have done so too.

Until mutual funds are asked to publish the AUM and NAV on a daily basis, investors don’t have complete information on their mutual fund scheme.

Fancy versus plight

Remember VLS Finance? This was the company that raised a hefty Rs 146 crore from the public at Rs 390 a share in 1994, with the preposterous claim in its prospectus, that the next time it made a public issue, it would not be for less than Rs 1,000 per share.

It also had such a glittering board of directors packed with top retired officers from the IAS and senior RBI directors, that investors were easily persuaded to part with their money. Since then, the price has been on a downward spiral and had dipped to Rs 2.25 in May.

Investors forgot about VLS Finance, even though the stock jumped 200 per cent in the recent bull run to a princely Rs 7.26 last Friday. Meanwhile, the company has invested Rs 1.2 million in an IRIS India Fund and is also an investment advisor to the offshore fund.

For a time it made news because of its litigation against Sunair Hotels to which it has lent money. Curiously, while investors have almost given up on their money, the company seems to be occupying the attention of scores of MPs. They have been writing to the government, raising questions in Parliament about VLS Finance and are even trying to pressure Sebi — see things their way. Interestingly, there seem to be as many MPs working against VLS Finance, as there are supporting it.

Tailpiece: When chairmen of banks and financial institutions accept lucrative corporate consultancy assignments immediately after retirement, it raises questions about the quality of loans sanctioned in their last days in office. Last week, we discovered that a recently retired bank chairman, known to be blunt and forthright, gets a six-figure fee for a two-day-a-week consultancy with a beleaguered steel group. Interestingly, a generous loan from this bank during the chairman’s tenure had put this group on the path to recovery. The RBI needs to eliminate doubts and suspicion about whether such ‘consultancy’ is a quid pro quo for past favours by insisting on a long cooling off period before heads of institutions take up assignments with their borrowers.

-- Sucheta Dalal