Sucheta Dalal :SPIC trick (22 December 2002)
Sucheta Dalal

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SPIC trick (22 December 2002)  



What happens when an institution replaces a powerful nominee director on the board of a company? Here is an example. Unit Trust of India recently replaced a former Reserve Bank deputy governor as its nominee on the board of SPIC Ltd because it thought that its interests were not being adequately represented. SPIC, which is headed by the influential South-based tycoon A.C.Muthiah, has been defaulting on its repayment of dues to several financial institutions including UTI. At the next meeting after the change, UTI’s new nominee on the SPIC board (a former Executive Director of the RBI) was surprised to find that his former colleague also on the board. He discovered that the ex-UTI nominee was now an ‘independent director’. The question is why would SPIC insist on having a particular director on its board when the institution that he represented wasn’t quite happy with the representation? The answer is the usual one about the so-called independence of independent directors being practiced in form rather than in substance.

Quick exits

Several multinational companies are rushing to take advantage of the long gap between decisions taken by the Sebi board and the time it officially notifies its regulatory changes. One example is the rush of MNCs to go private by buying out their entire minority shareholding. Following a recent board decision, companies planning to go private would have to adopt the reverse-book route to buyback their shares. But most companies resent a situation where minority shareholders will have a say in deciding the buy-back price. While some investment bankers contend that minority shareholders will never be smart enough to demand the right price, the sudden rush of buyback offers indicates that companies would rather not wait for the changed rules. Among those buying back their shares are Atlas Copco, Syngenta India, Kodak and Reckitt Benckiser. It remains to be seen if they are successful in completing the mop up and delisting their shares before the rules change.

Reluctant to list

While on the issue of delisting securities, investors would have noticed that Sterlite Industries is still not traded on the National Stock Exchange. That is because the numero uno exchange has decided that companies should officially get their stocks listed on the bourse, rather than have them traded as permitted securities. Also, the NSE couldn’t demand compliance with listing rules and redressal of investor complaints by companies that were not officially listed. It wasn’t getting any listing fees either. Most companies have complied with NSE’s request, or are in the process of doing so—except for a clutch of multinationals that are simply not interested. These (and Sterlite) are companies that are determined to delist from all bourses and do not see any point in listing on the NSE and subjecting themselves to unnecessary disclosures. Among these are Proctor & Gamble, Castrol, MICO and one surprising PSU—BHEL.

All in the name

Numero Uno, reminds us of the company by that name floated by film star Sanjay Khan. UTI made a Rs 5 crore investment in the company (one lakh shares at Rs 500 each) in a private placement deal. The investment quickly had depreciated by Rs 4.93 crore to almost nothing. But Sanjay Khan persuaded UTI to buy another one lakh shares, promising to make up for any loss in the value of investment after the company made its IPO. The JPC report has a funny account about how UTI’s former chairman P. Subramanyam explained his investment in Numero Uno. He said that Ashok Wadhwa of Ambit International, who was ‘a reputed consultant’, proposed the deal and that was apparently enough. The icing on the cake was that company was ‘promoted by the famous film maker Sanjay Khan’ and Subramanyam was told that his ‘son-in-law Hrithik Roshan, who was a rage in the market would be joining’. Together, ‘they would be coming up with programmes like Mahabaharat’ which would rake in the profits.This was probably as naive as believing that Hrithik Roshan’s dance sequence for the defunct Home Trade’s advertisements would improve the company’s bottomline. However, Subramanyam could not explain why he had made no move to claim the compensation that Sanjay Khan had promised when the IPO never happened. Was there another quid pro quo at work here or just faith in big bull Ketan Parekh keeping prices skyhigh? The JPC has no answers; it has now ordered that UTI should initiate legal action to recover money from Khan.


-- Sucheta Dalal



 



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