Media commentators continue to blame part of the post budget
decline in stock prices on a discussion paper released by Sebi (Securities and
Exchange Board of India) about a ‘code of conduct’ for foreign institutional
The paper had discussed how to control and quantify the issue of
Participatory Notes (PNs), which allow those who are otherwise ineligible to
invest here to buy Indian stocks.
Nobody can argue that Sebi’s attempt to staunch the inflow of hot/black money
via Participatory Notes (PNs) is bad for the Indian capital market. PNs are
financial paper issued overseas which represent underlying investment in a
basket of Indian stocks; and our regulators frown upon their issue. The
investment in PNs is usually routed through multiple layers to hide the ultimate
Why should the regulation of PNs cause stock prices to tumble? Probably
because powerful Indians who invest their unaccounted earnings in the stock
market through PNs do not want a Sebi probe. It would seem that they are using
the nervousness caused by war fears and a not-so-rosy-after-all Budget to stop
Sebi from probing the PN racket.
Nightmare of 1992
FOR some small investors the nightmare of the 1992 Scam hasn’t ended. Last
week a reader from Chennai wrote to ask where the Special Court, which has been
trying the securities scam offences was located.
He had received summons asking his wife to be present in the Mumbai court
‘for failing to comply with a court order’ to transfer 50 bonus shares of
Reliance to Fairgrowth Financial Services. The man had bought some shares in his
wife’s name in 1991 and sold them subsequently. She received 50 bonus shares
after selling the original holding. In September 2001, Fairgrowth, which had
purchased the shares asked that they be sent to the custodian with a signed
transfer deed; and she did. ‘Now I don’t know what the hell this (the summons)
is about’, says the reader.
We tried to find out. But officials at the custodian’s office refused to come
to a phone despite repeated calls; finally a peon rudely said that queries would
only be answered in person. We had even better luck at Delhi with Dinesh Tyagi
who is the custodian appointed by government.
He was polite, willing to help and agreed that small investors ought not to
be harassed. Unfortunately, we don’t know how many small investors out there are
terrified at the summons to appear in the Special Court on March 10 and unable
to get any answers from the custodian’s office.
Last Thursday, Motorola Inc of America agreed to settle several lawsuits
filed against it by Chase Manhattan Bank in connection with Iridium — the global
satellite company that went bust a few years ago.
The deal is that Motorola will pay $12 million against its guarantee of $300
million out of a $800 million loan to Iridium by a bank consortium. Although the
suits filed by Iridium’s unsecured creditors in the US remain outstanding, nine
Indian institutions would probably be unhappy at the low settlement.
These institutions had invested in Iridium through an Indian vehicle called
Iridium India and have sued Motorola in India for over a hundred crore rupees.
They hoped that Motorola, which has a big business in India would want a
settlement, but a few of them were certainly hoping for a big settlement.