Essar Steel, the company that has given nothing but grief to shareholders since 1992, has finally been cleared for delisting, despite angry protests by its shareholders. In the run up to delisting, the promoters’ anti-investor actions have seen their shareholding increase from 34% to a massive 87%. This led to a skewed delisting process that ensured a discovered price of a low Rs48, although it is Rs10 higher than the floor price of Rs38. After a stay order against the delisting was vacated, another investor’s appeal to the Securities Appellate Tribunal (SAT) was posted for hearing, but that too had no impact on the suspension of trading.

Meanwhile, there is something curious about the trading pattern in the shares. The share price had soared to as high as Rs78 despite the delisting price of Rs48. When SAT vacated its ex-parte stay order against the listing process, the shares finally plunged nearly 10% to Rs57 and further, the next day. But there was another curious element again. After reports that yet another investor had moved the SAT against the delisting, nearly 50 lakh shares were traded at Rs51 within the first hour on 13 December 2007. Did someone know something? Or was this just pathetic optimism or a smart contrarian move by some knowledgeable operator?

Free for All

Corporate India has reason to celebrate. If the share prices of the blue chip companies are soaring because of spectacular growth and profitability, the notorious ones are doing just as well. Under SEBI’s benevolent eye, we have the example of Essar Steel choosing to throw out shareholders at a low Rs48 per share even when it is clear that the intrinsic value of the shares is significantly higher. It managed this feat after SEBI’s attempt to change the reverse delisting rules to dis-empower retail investors had failed. Meanwhile, companies such as Vikas WSP, which was suspended after a complete breakdown of even elementary corporate governance, has bounced back and trades at a respectable Rs66 on the Bombay Stock Exchange (12 December 2007) after relisting at Rs35. Silverline Technologies, which was always known as a Ketan Parekh favourite (a K-10 stock), has de-merged its animation division and relisted its shares after a reduction in capital. It is trading at around Rs142 and probably getting ready to extract value from the de-merged division as well. Meanwhile, realty companies continue to drive up stock prices without having to look for too many customers, especially in the residential segment. These companies are flush with funds raised through public issues in India, in the Alternative Investment Market of London or through private equity. This allows them to build and hold on to unsold buildings without any pressure to sell. Many of them are now getting ready for a second round of fund raising while property prices as well as their share prices are still soaring.

Meanwhile, some companies continue to dump investors and delist their shares. Essar Steel is among the most notorious examples in recent times, but it is not alone. We have a copy of the legal notice sent by an angry shareholder addressed to Rajiv Mehrotra, chairman of Shyam Telelink expressing shock at its move to delist the shares. Then there are innumerable cases where companies have merged, demerged, spliced or acquired private entities belonging to the promoter (at exaggerated prices) or given themselves warrants or preferential shares to increase their holding and enhance their personal net worth during India’s most powerful bull run. Most of this is at the cost of retail investors.

Poor Market Infrastructure

The lack of financial literacy is not the only thing that keeps investors away from the market. In fact, ever more cumbersome entry procedures and lack of stock market infrastructure are bigger problems. Goa, the getaway haunt of India’s rich and famous and India’s most popular tourist destination, is an example. After the initial public offering (IPO) of Power Grid Corporation in September 2007, Vijay Samant, an investor, wrote to SEBI chairman saying that this issue did not have a single bidding centre or a single banker to the issue in the entire state of Goa. Consequently, investors determined to apply had to send their applications to Mumbai. Since brokers refused to accept local cheques, they forked out more for demand drafts and had a single day window to submit their bid applications. That wasn’t the end of their woes. They received refund orders drawn on Citibank, which does not have a single branch in Goa. These took an additional fortnight to get refund cheques cleared and the banks imposed a bunch of additional charges on them including courier charges and commission.

If this is the situation in prosperous Goa, which is next to India’s commercial capital, how much worse would it be in the economically weaker and remote regions of the country? Vijay Samant has repeatedly requested SEBI to instruct IPO issuers to ensure timely refunds, a local branch presence and preferably a bidding centre in each state with adequate time for retail investors to bid. The Consumer Education and Research Centre (CERC) of Ahmedabad has also added its voice to the cause, but so far, SEBI has not bothered to respond. The irony is that Indian regulators and stock exchanges constantly boast to the international community about the T+2 trading system with a single nationwide screen and 100% dematerialisation.

Ignoring Small Investors

The basic reason for this neglect of retail investors is that decision-makers have never tried to understand the ordinary investor. They are happy at an institutional market, dominated by foreigners (who have made the maximum money in this five-year bull run) while paying lip service to retail market participation and financial literacy. In fact, yet another SEBI chairman will complete his term in February, without addressing this issue.

M Damodaran started his tenure by junking the SMILE committee report, which had made some sensible recommendations about improving primary market infrastructure. It is widely believed that the report was dumped only because of Damodaran’s inter-personal differences with its chairman Dr PJ Nayak. Damodaran then started a bruising battle with the National Securities Depository Limited (NSDL) in which SEBI has not followed due procedure in issuing show-cause notices, giving a hearing and establishing guilt before handing out some absurd penalties. As a result, all genuine issues that SEBI may have had about a depository’s functioning have been overshadowed. With NSDL challenging every SEBI order and winning some, the regulator’s actions have ended up losing legitimacy.

Dalmia Revisited

While Kolkata has been rocked by the Nandigram tragedy and the Rizwanur-Todi case, one section of the police, led by the doughty assistant commissioner of police, Swapan Dasgputa, continues to make progress in what is known as the Kolkata-end of the scam of 2001. Thanks to his efforts, again there is pressure mounting on the government to transfer him out of the economic offences division. But there have been some important breakthroughs in the meanwhile. In November, Rabindra Biyani, one of the prime accused, who has been untraceable for several years, surrendered before the court. On 29th November, the Kolkata High Court rejected yet another bail plea by Dalmia in the Rs120 crore Calcutta Stock Exchange (CSE) scam. Earlier, on 20th September, the Supreme Court had also rejected a bail plea of Dinesh Dalmia. This case pertains to the 2001 Ketan Parekh scam and the trial has already begun. Meanwhile, the US Justice Department’s orders against Dalmia a.k.a. Nick Mittal are posted on the Internet and easily accessible in a Google search.