Foreign companies bag outsourcing contracts on Indian soil, one shareholder managest to stop an IPO, the market is getting tired of delays at SEBI and the Dabhol imbroglio carries on. Read on for details.
Is this outsourcing?
By Sucheta Dalal
In the last few weeks, Bharti Tele handed out a massive $ 750 million order to IBM while HDFC Bank was apparently negotiating another worth $ 100 million with it. The Bharti order is a big deal even by global standards. Isn’t that curious? American politicians have made outsourcing to India a major election issue, so how come an American company’s Indian unit is bagging plum contracts here? Shouldn’t someone tell the Americans? A highly respected Information Technology Czar tells me that IBM and Hewlett Packard score over Indian bidders because they can provide a one-stop shop service in both hardware and software. He also says that Indian software companies have indeed pointed out to US senators and congressmen that their companies are as much in the race to bag outsourced contracts here. NASSCOM is even appointing a lobbying firm in the US to make this point more forcefully. But clearly, US politicians will be in no mood to drop such an emotive issue on the eve of their Presidential elections. Since no Indian company expects outsourcing to decline, they are not overly worked up either; they are more worried about margins being squeezed rather than business drying up.
Power of One
When the regulator is alert, even a single shareholder can make a difference. The last minute postponement of the Data Access (India) Ltd. (DAIL) public offering last week is attributed to an email from Ray Framroze of Mumbai, who wrote to the Securities and Exchange Board of India (SEBI), the media and other authorities alleging that the company was “hiding several material facts”. He said that DAIL had defaulted on payment leading to Bharat Sanchar Nigam (BSNL) disconnecting its Points of Interconnect in several cities. He alleged that DAIL has inflated the quantum of traffic terminated on BSNL’s network; and that BSNL’s Karnataka circle had threatened it with disconnection for failing to pay its dues. Framroze also alleged that DAIL owes Rs 35 crore to Intelsat and that SEBI needs to inquire about it from key government agencies. DAIL of course said that it has answered all charges satisfactorily. But market intermediaries are asking if it is fair for an Initial Public Offering (IPO) to be cancelled at the last moment, when the red-herring prospectus is posted on SEBI’s website much earlier.
The answer is probably the same that applies to a leaked examination paper. Once a problem is known, the regulator has no option but to act, otherwise it would have failed in its job. In fact, SEBI would have had to act, even if the disclosures became public after the IPO had opened for subscription. That is because the information provided by Framroze was not easily available to ordinary investors and the dictum of ‘caveat emptor’ (investor beware) would not apply.
After stock brokers, market intermediaries, bank chairman and their wives stood in five hour queues in Mumbai’s sweltering heating to get themselves tagged, photographed and finger-printed for their Unique Identity Numbers (called MAPIN), SEBI has extended the registration date to June 30. But, the regulator and the Finance Ministry should note the seething anger among market participants at the procedure. They point out that SEBI’s intrusive identification system and its attempt to detect wrongdoing more swiftly is only justified if its own operations are fair and efficient. Instead, any routine permission, clearance or authorisation by SEBI takes anywhere between two to four months; and investigations carry on almost endlessly.
Often, intermediaries go back and forth on mindless issues that should be sorted out first time. Letters and calls and unanswered for weeks. So much so that there is a sense of deep frustration and persecution among brokers, fund managers and even companies that deal with the regulator. The complaints often come from surprisingly high profile individuals, but nobody is willing to go on record for fear of reprisal.
While IDBI is still to provide for the loans extended to Enron’s Dabhol Power Company (DPC), three foreign banks (ABN Amro, ANZ Grindlays and Standard Chartered Bank) are suing the British government for rejecting their insurance claim of $81 million in their Indian investment in Dabhol. The banks claim that the investment was covered for overseas investment risk by insurance from the Export Credit Guarantees Department. The banks are seeking to cover their losses and interest through the ECGD insurance, in the same manner that General Electric, Bechtel and Bank of America made successful claims against the Overseas Private Investment Corporation because the Indian government had expropriated the project. However, in the U.K. a clutch of trade unions and activists have asked the government not to pay the banks, charging that the lenders should have known about the dubious background and project details of Enron’s Indian project.