Sucheta Dalal :Whirlwind developments (28 May 2001)
Sucheta Dalal

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Whirlwind developments (28 May 2001)  

For years, the discussions about the fate of the controversial Dabhol Power Company have been mere rhetoric and confusion, but high-speed developments last week have left even the anti-Enron activists breathless. First Enron threatens MSEB with a pre-termination notice and the Maharashtra government cries foul and counters with its own charges. This caused Indian financial institutions who are Enron’s main lenders to bleat in protest and lobby to protect their investment. Then NCP leader Sharad Pawar calls for the re-negotiation to be headed by an unbiased negotiator, and Madhav Godbole who heads the negotiation committee resigns. Even before his supporters can rally together in support, the State Cabinet persuades him to withdraw his resignation. Then MSEB itself springs a surprise and pulls the plug on Enron rendering the re-negotiating committee without a clear role. Yet, for all the flurry of chaotic activity, there seems to be a method in MSEB’s madness. Apparently, the MSEB needed to cut the DPC deal before the escrow account on the first half of Phase II of the mega project became applicable on June 7. The MSEB has followed this up by filing a caveat with the court to prevent the escrow account being operated without due process. The people of Maharashtra should be relieved that for the first time in 1994, the MSEB actually seems in charge and acting in the interest of the State.

The big losers

With MSEB having switched off the DPC project, the biggest losers are likely to be Indian financial institutions and banks. These together have an exposure of a whopping $1.2 billion or Rs 5,255 crore (including guarantees to foreign lenders) in the $3 billion project. The irony is that although Enron has always warned us about the negative impact on foreign direct investments to India if its project is cancelled, nearly half the investment is from Indian financial institutions and banks; or is guaranteed by them. Indian FIs were probably lured by DPC’s willingness to pay a high 21 per cent interest, although the project was secured with multiple guarantees; or they were ‘educated’ into believing that it was a good business proposition. Indian financial institutions stand to pay Rs 3,000 crore on behalf of US Exim, Japanese Exim, Belgian Exim, Miti and OND in case the project collapses. Clearly, this is not the end of the Enron story. It is now that the negotiation process can begin in real earnest; or Enron may decide to find a buyer who is willing to settle for lower returns, sell its stake and exits India.

Dinesh Dalmia buys a firm

DSQ Software has been in the news recently because of the massive churning of its stocks before and during the recent stock market crisis. So much so that crucial corporate developments seem to have gone virtually unnoticed by the investment community. DSQ’s chief honcho and promoter Dinesh Dalmia tells us that sometime in March, the company quietly acquired Fortuna Technologies — a San Jose-based IT company. The deal obviously involved an issue of fresh capital, because it has taken DSQ Software’s capital up from around Rs 30 crore to Rs 47.5 crore. But Dalmia is rather reticent with the details. He says that all the listing formalities were completed in March and promises to mail us details over the next week. Watch this space.

Blame it on films

A close friend and fellow operator of Ketan Parekh has this analysis to make about his downfall. Everybody who was associated with Parekh, he says, have always credited him with sobriety and good business acumen. They also said that he was determined not to repeat the mistakes that Harshad Mehta made and not cling on to scrips because of his ‘friendship’ with the industrialists controlling the companies. So why did he abandon his game plan, remain stuck with large and highly depreciated stocks and get involved in a banking fraud? According to his friend, it was his association with the film industry and its glamourous stars that finally did him in. Partying into the wee hours of the morning, the once astute broker, apparently lost his grip on the market and his ego took over. He failed to notice the speed with which the new economy stocks were falling, and ran out of mutual funds and investments to ‘place’ them with. In the end, he had to resort to fraud to cover up his losses.

Expensive gifts

The same friend tells us that when Ketan Parekh became so close to his industrialist friends that they were gifting him obscenely expensive cars, it was almost impossible dump them and their stocks. One gifted him the Lexus and another a Cadillac which was apparently custom built with multiple television screens and other gizmos.

-- Sucheta Dalal