After UCO Bank was discovered to have allotted nearly 25 per cent of its shares in physical form; it is now the turn of Indian Overseas Bank. The National Securities Depository Ltd (NSDL) tells us that over half the issue has been allotted to investors in the physical form. The allotment break-up is as follows: IOB credited five crore shares to 1,12,500 accounts at the NSDL and seven lakh shares to 2,160 accounts at the CDSL. And a massive 171,000 accounts have been sent 4.85 crore physical shares. This means that over half the investors to IOB’s recent IPO of Rs 240 crore at Rs 24 per share cannot sell their shares on listing. This will especially hurt investors who borrowed from banks and subscribed to the issue. Sebi regulations permit secondary market transactions only in dematerialised form. Since the process of dematerialising physical shares takes anywhere between six to eight weeks, it means that the price would remain artificially high at least for that period. The Sebi must ensure that unlike UCO Bank’s stock the new IOB shares are not listed on stock exchanges until all investors who applied for demat shares receive them in electronic form. Otherwise, it must hold the registrar, Cameo Corporate Services responsible for opportunity-loss suffered by investors and investigate the cause of such high physical allotments.
When last heard, Sebi planned to investigate UCO Bank’s unusually high allotment of physical shares by inspecting the registrar. Investor complaints received by this paper were all forwarded to the regulator and most investors insisted that had made no mistakes in their applications that could have prompted Karvy Consultants, registrar to the issue to send out physical shares. Karvy has been scurrying around retrieving physical shares from investors and converting them to electronic form at its cost. The bank itself has remained silent. Had the market watchdog cracked down on the UCO Bank case more decisively and made public its investigation, the IOB registrars would probably not have discovered same ‘mistakes’ in applications that Karvy seems to have done. Investors who have received physical shares in the IOB issue could email their complaints to this newspaper for follow up action.
The messy IPO listing situation is not restricted to the bank scrips. The Bag Films’ public issue was listed for secondary market trading on Friday. The stock exchanges listed two sets of shares—the Rs 2 fully paid up shares and the Re 1 partly paid up shares. The shares opened for trading at a high Rs 16 and closed the day significantly lower at Rs 12.60. However, excited investors trying to book immediate gains on their IPO allotment ended up selling partly paid (Rs 1 face value) shares, to find that only fully paid up shares were being traded, and stock exchange websites had no information. Sebi must ensure that there is a clear distinction between partly paid up and fully paid up shares and categorical rules for the allotment. The regulator should also consider doing away with the face value concept, so that different face values do not confuse investors and make it difficult for them to evaluate the secondary market price performance of companies.
At a meeting of the International Organization of Securities Commissions (IOSCO) in Seoul last week, 24 capital market watchdogs from around the world signed an MoU agreeing to crack down on fraud in the stocks, bonds and derivatives markets. They also agreed to exchange vital information for tracking cross-border securities and derivatives violations including bank, broker and client identification records. The signatories include the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission of the US and the Financial Services Authority (FSA) of UK. Will the new agreement lead to better cooperation between Sebi, SEC and the FSA? A test case would be whether the SEC and FSA pay any attention to Sebi’s disciplinary action against stockbrokers barred from the Indian capital market, but whose research reports flaunt their international trading memberships under the supervision of the SEC and FSA. Will the regulators now pay attention to Sebi’s letter?
Tailpiece: Sterlite is turning out to be the best example of why investors must resist buybacks. The scrip touched a high of Rs 925 last Thursday, closing the week at a high Rs 877.20 on the BSE where it is listed. This is the company that was trying to oust retail investors at Rs 100 per share in cash plus five non-convertible debentures of Rs 10 each redeemable after four, five and six years. Surely, Sterlite’s market savvy promoters aren’t unhappy at the development either. -- Sucheta Dalal