Sucheta Dalal :A few black sheep? (30 July 2001)
Sucheta Dalal

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A few black sheep? (30 July 2001)  

Unlike Scam 1992, which was about the collusion of money market brokers with banks, Scam 2001 is about brokers and their nexus with corporate houses. It is not a few black sheep, but many powerful operators who were found deeply involved in the rampant price rigging. They called the shots at most bourses, and their combined turnover/financial clout would account for a significant portion of national trading turnover. Also, brokers with their trading memberships worth a few crore each cannot claim to have the largest stake in the capital markets. It is the investors—small, large, or institutional, who have the largest stake and are the ones who are worst hit by the crash in stock prices and market malpractice. If the brokers forum takes a note of these points, it would lead to a dramatic change in their perspective and reduce their belligerence.

Zero sum game

Unit Trust of India (UTI) was the biggest buyer of public sector shares divested by government in the mid-1990s. The Trust used to snap up the entire offering of shares, barring the odd bundles or two where it was outbid. In 1999, the Deepak Parekh Committee pointed out that the book value of its investments were a huge Rs 4,800 crore and they had suffered a net depreciation of Rs 2,068 crore. He recommended that the PSU shares be transferred to a new scheme called the SUS-1999 and the exchequer subscribes to its units to the extent of their book value. A revival in stock prices allowed, the government to fork out only Rs 3,300 crore towards the bail-out. This meant that its net realisation through PSU divestment was only Rs 1,500 crore. But guess what; that is exactly the sum that UTI chairman M Damodaran is now seeking from the government in the second bail-out. In effect, PSU divestment is a zero sum game. What the government collected by offloading PSU equity, it gave back through the bail-out of banks and institutions.

For want of market intelligence

For nearly two years, the capital market knew about this curious friendship between Tata Finance managing director Dilip Pendse and another company executive (who has now been sacked) with a former Big Bull operator. Tata Finance’s purchase of over six per cent of the equity of Vakrangee Software only confirmed the friendship, because it was a scrip which the Bull had been ramping up. Only the Tatas were clueless. In fact, even a few months ago, when this paper wrote about the Nishkalp mess, the Tatas had stood by Pendse. At that time, Pendse had quit the company and was all set to join Global Telesystems—a company promoted and managed by his relative Manoj Tirodkar. Pendse had also made big investments in Global Tele. The Tatas now have legal advice that there is a ‘prima facie case of criminal breach of trust, falsification of accounts and cheating’ which can be lodged against the former MD. If only the Tatas were more open to market information, they would probably have saved themselves and their investors heavy losses. They may also want to know that Enforcement Directorate, which continues to investigate certain foreign exchange violations committed by Indian Hotels Ltd during the Ajit Kerkar era, have been questioning Manoj Tirodkar in that case as well. We now find that Pendse was a former assistant company secretary in Indian Hotels.

DSQ’s googly

Dinesh Singhania of DSQ Software bowled a googly to the stock exchanges by getting an ex-parte order from the Chennai High Court, restraining them from suspending trading in his shares. Consequently, the scrip shot up over 20 per cent on Friday morning. While it is true that delisting shares only punishes the investors, there is little else that bourses can do in the absence of any other powers. Members of the Joint Parliamentary Committee (JPC) have dashed off scores of questions about the DSQ Software issue may want to ponder over this new judicial wrinkle in the course of bourses’ attempts to discipline problem companies.

Debenture travails

Now that the Securities and Exchange Board of India has tightened the rules for Debenture Trustees, investors are left high and dry. A new crop of companies are making investors cry over redemption. For instance, Hindustan Development Corporation was due to pay redemption installments on April 20, 2000 and April 20,2001 and interest on January 31, 2001—the money is nowhere in sight. Then there is Raasi Fertilisers which has proposed deferred payment of redemption installments and reduced the interest on this deferred payment to a low as 8 per cent. According to investors, after the UTI debacle, they aren’t even sure if anybody is going to listen to their complaints and protests.

-- Sucheta Dalal