Sucheta Dalal :Blotched numbers
Sucheta Dalal

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Blotched numbers  

Jun 25, 2006

The breakdown of the Jet Airways and Air Sahara merger is seen as a triumph of business compulsions over monopolistic intentions. A lot of dirty linen was strung out in the ugly falling out between the two controversial companies. But one aspect to the divorce has escaped attention—the role of the consulting company that had valued Air Sahara. Let us look at how the valuation has tumbled. In September 2005, Sahara’s high-profile President Rono Datta said: ‘‘Initial estimates by Ernst & Young have put our enterprise value between $750 million and $1 billion and not the meagre $300 million.’’ Soon enough it was clear that the airline was deeply in the red and Jet wanted the price dropped to $272 million. We then reported that the real valuation could be even lower. Sources now say that it is more like $100 million. Far from the urbane front presented by the Air Sahara spokesperson (Rono Datta is no longer in the picture) the anger is spilling over behind the scenes. Sahara seems to blame Ernst & Young (E&Y) for the mess. Industry circles are agog with reports that E&Y has offered to return all fees and expenses in order to stave off legal action. This shocking decline in the value of Air Sahara surely warrants an independent inquiry, the question is who will do the job?




The CEO of a company that recently filed a red-herring prospectus for its maiden IPO told us that he had chosen the Bombay Stock Exchange (BSE) as the company’s ‘designated exchange’ for reporting requirements, deciding basis of allotment etc. His investment bankers advised him to go with the BSE saying, ‘‘If you have any queries or need any help outside 9-to-5, you’d better go with the BSE’’. It turns out that this does not reflect one individual’s opinion. We learn that of all the IPOs listed after 2003, 107 companies chose the BSE as their designated exchange while half the number—just 57—opted for the National Stock Exchange (NSE). Ironically, this view about the BSE and preference for dealing with a bourse managed by practitioners is shared by brokers, investors and regulators of equity markets as well as the new commodity markets. A regulator tells us that he receives a barrage of complaints about the inaccessibility, standoffishness and unhelpfulness of the ‘‘professional’’ bourse while broker-run bourses are apparently more receptive and quite happy to part with mobile numbers and open to receive calls or queries at any time. If there is such a consensus on the issue, it may be a matter of time before it starts to reflect in the exchange turnover which professional-run exchanges captured by their much superior professionalism.


Selling stake


While on stock exchanges, some investors alleged that the NSE’s 2% stake in the Multi-Commodity Exchange (MCX) raised several issues of conflicting interest since MCX plans to list its shares on the NSE. The market regulator has still to issue guidelines or regulations to deal with ‘conflict of interest’ issues that are bound to crop up when exchanges want to self-list, list on other bourses, or buy a stake in a domestic or foreign bourse. In this larger scheme of things, the NSE’s 2% stake is not significant enough to cause a flutter, but since it has attracted comment, the regulator has advised the NSE to divest its holding in order to avoid needless controversy in the run-up to MCX’s listing and until its rules are finalised.


Taxing times


How many times have you heard tax officials say, ‘‘If a person is really honest, why should he worry about harassment?’’ Even as activists around the country have launched a ‘‘National campaign against bribery’’ we are receiving a string of complaints from investors and securities firms about extortion by tax officials even when their taxes were correctly paid. One broker was asked to pay ‘‘just Rs 50,000’’ because his books were clean; another was told to pay Rs 5 lakh or go through the torture of having Rs 50 lakh disallowed and the cost and hassle of an appeal. He paid the bribe only because a long battle would have hurt his business more. The official openly collected the cash in office and stashed it in his cupboard. Excise officials, who are a little lower down the food-chain, are demanding a gift to be purchased at a specified shop for a few thousand rupees. These are cases where bribes were demanded even when taxes were properly paid. One official told an assessee that he had paid a hefty sum for the posting and didn’t really care if he had paid his taxes honestly. It is hard to believe that the Finance Minister, who conjures up new taxes every year and reworks tax forms to make people more honest, cannot find ways to crack down on dishonest tax officials as a way of improving tax compliance.


-- Sucheta Dalal