Sucheta Dalal :To sell or not to sell (18 August 2002)
Sucheta Dalal

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To sell or not to sell (18 August 2002)  

Should Unit Trust of India (UTI) be allowed to make block sales of its equity holdings? The answer to that question would depend on the newspaper you are reading.

While some newspapers say that government will not interfere with UTI’s decisions and has only insisted on transparency in its dealings, others would have you believe that government is against block sales. The reason for its diktat is rather funny.

Apparently, an investment guru in government told a pink paper that since block sales would depress stock prices, UTI should sell its shares in ‘small lots’. Exactly the opposite is true. Block sales on spot basis are negotiated outside the market and do not affect prices. If the sale is at a premium to market, which is likely, it could even push up prices in anticipation of a change in management control or an open offer to retail investors.

On the other hand selling small lots causes slow erosion in stock value as it kills investor interest. If anonymous investment experts have been offering UTI such pearls of wisdom over the years, it is no wonder that it now needs a Rs 15,000 crore bailout.

Demutualisation delays

Various scams and the change in the netas and babus at the Finance Ministry have caused some key stock market related issues to be mothballed. After Scam 2001, the finance ministry ordered Sebi to sack broker directors of all stock exchanges and to demutualise the bourses.

Well over a year later, the de-mutualisation process has made no headway. The fate of loss making regional bourses is also undecided. Consequently, public representatives with enormous powers, but little public accountability now dominate many exchanges.

They have made controversial decisions and have continued in their posts long after their term has ended. Ironically, one leading exchange, whose public directors have been especially controversial, has written to Sebi asking that the same directors be re-appointed. Isn’t it time we saw some tough decisions from Sebi on sticky issues? The newness of the present chairman is beginning to wear off and investors are starting to ask questions about the fate of certain politically sensitive investigations.

Special treatment

While banks have been dashing off notices to defaulter companies, some investors have written to point out how I.G.Petrochemicals seems to receive special treatment. The company figures in the list of defaulters published by the All India Bank Employees Union.

It owes, Rs 12.42 crore to Allahabad Bank, Rs 62.57 crore to Bank of Baroda, Rs 67.53 crore to Bank of India, Rs 41.14 crore to Canara Bank, Rs 27.95 crore to Dena Bank, Rs 20.76 crore to Standard Chartered, Rs 26.79 to United Bank of India, and Rs 20.20 crore to Vijaya Bank.

In effect a cool Rs 280 crores. This does not include another Rs 200 odd crore that it owes financial institutions (ICICI Rs 80 crore, IIBI Rs 14 crore, IDBI Rs 44.7 crore, LIC Rs 9.98 crore, UTI Rs 7.5 crore, UTI Bank Rs 26.39 crore, ICICI Bank Rs 25.9 crore and State Bank of Hyderabad Rs 5.25 crore).

In fact, according to its annual report, its total exposure to banks and institutions is Rs 594 crore and its losses over Rs 114 crore in FY 2001.

Curiously it name does not figure on any action list for quick recovery not does appear on the Reserve Bank’s official defaulters’ site What could be the secret behind IG Petrochemicals special treatment?

MNCs and competition

Recent corporate scandals in America ought to strengthen the case of Indian industrialists worried at the spate of delistings by multinational companies operating here.

In the past, a group led by Rahul Bajaj had expressed concern over the implications of such delisting, in terms of corporate and financial disclosures by these companies.

It was pointed out that while listed companies now need to announce quarterly results and follow segment-wise reporting requirements, their MNC competitors would rveal little about their operations.

Since many US companies have confessed to rampantly bad governance and poor ethics, it is imperative that the government should address the concerns of listed Indian companies and frame stricter disclosure norms for wholly owned MNC subsidiaries and other private companies operating here.

-- Sucheta Dalal