Sucheta Dalal :No London trips
Sucheta Dalal

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No London trips  

Feb 7, 2005


When the government unshackled Air India’s monopoly over flying foreign destinations, did the aggressive Indian Airlines (IA) forget to bid? After all, it will be at a serious disadvantage when rivals Jet Airways and Sahara get to offer linked foreign and domestic travel plans to full fare and hard-currency paying foreign travellers.


Was IA pressurised not to bid by the civil aviation top brass? And did it bid for smaller routes like Birmingham and Manchester and still not get them? The rights to the London route were decided overwhelmingly in favour of Jet Airways. Of the 33 flights on the London route, Air India already operates 18; seven were given away to Jet Airways and Sahara was allowed two flights a week.


Meanwhile, Indian Airlines was completely blanked out and others were disqualified for lack of experience. With the risk-ridden Jet Airways IPO getting an extra fast clearance from the market regulator and the government showing it special favours by handing over lucrative London route, the system seems to be working hard at ensuring a successful listing by the company.


MAPIN changes


Despite all the angry column space devoted to the futility of the MAPIN database (which requires investors with transaction sizes of Rs 1 lakh plus and all market intermediaries and their direct relatives to get a unique identification number requiring biometric finger printing and photographs) — the market regulator is pushing hard towards the March 31 deadline.


However, there is some good news for investors who need to meet the deadline and are unclear about what to do. First the National Share Depository Ltd (NSDL), which is building the database for the regulator, plans to increase the number of market intermediaries empowered to provide the MAPIN registration from the current figure of four. This should improve access and reduce the queues.


Secondly, NSDL will start a helpline for investors who are unclear about procedures or need special help in resolving their MAPIN related queries. It plans to publicise this through newspapers and other media.


Thirdly, NSDL promises special service to senior citizens who are invalid or otherwise physically-challenged by having the MAPIN process completed at their homes. They will need to call the NSDL helpline or write in to this newspaper for details. All these moves are welcome, but we still don’t have a clear answer from the Securities and Exchange Board of India (Sebi) how exactly will the MAPIN information help it improve upon its sordid track record of punishing market manipulation or insider trading.


Manipulation of IPO?


SEBI data is inconclusive on whether the rush of institutional applications within five minutes after a book-built issue opens for subscription sends out exaggerated positive signals to IPOs and triggers a rush by retail investors to subscribe to Initial Public Offerings (IPOs). Sebi found that although institutional investors pay no margins and are allowed to reduce their bid size, there is not enough evidence of their having done so.


However, the data also shows massive over-subscription of the good issues within minutes after it opens for subscription. This means that institutional investors don’t need to withdraw applications for fear of getting a higher allotment than they want. Moreover, unlike in the case of retail segment, institutional allotment is decided by a friendly club of book-runners after consulting the applicants. Ample evidence of this is available abroad, where the world’s leading investment banks are still ‘‘settling’’ cases with the US Securities Exchange Commission (SEC) without admitting to any wrong doing.


For instance, last week Morgan Stanley and Goldman Sachs paid up $40 million each to end a federal probe into whether or not they ‘‘artificially and illegally pumped up the IPO market’’ during the bubble of the late 1990s.


The investment banks inflated the demand for their IPOs by selling shares to two firms, who promised to buy even more shares at a higher price after the issue.


But Goldman Sachs and Morgan Stanley are not the only ones to settle such charges. JP Morgan entered a similar settlement in 2003 by paying up $25 million and Credit Suisse First Boston and Merrill Lynch paid $100 million each to settle charges of IPO abuse.


Tailpiece: On January 19, the Mahanagar Telephone Nigam Ltd (MTNL) sent a notice to the stock exchanges that its board planned to consider a bonus issue. On the 29th, the board prudently rejected the proposal after profits had dipped nearly 60 per cent. The share price, which was Rs 135 on January 19, rose sharply after the announcement until the bonus was rejected. It then fell substantially in a rising market.


Didn’t the management realise the bonus would look strange when profits are down? So why trigger so much of price volatility? At the least, the episode suggests poor governance within the company.


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-- Sucheta Dalal