Two-pronged probe into UTI muddle
Six reach next round of biddingfor fourth cell licence
Behind-the-scenes badla boom
LIC to pick up Corp Bank stake at 26% premium
JPC team to call on CSE today
Sebi warns rogue traders again
Perform-or-pay mantra at Duncan
Indal in talks to pick up 51% in Utkal Alumina
Ranbaxy net up 34% in first half
Foreign Exchange, Bullion, Stock Indices

 
 
TWO-PRONGED PROBE INTO UTI MUDDLE 
 
 
FROM OUR SPECIAL CORRESPONDENT
 
New Delhi, July 9: 
The government has decided to order an independent inquiry into the affairs of Unit Trust of India. The probe will cover two aspects: first, the charge that a number of companies redeemed their units in May on the basis of insider information and, second, UTI’s controversial investment decisions, especially in those stocks that were favoured by a few scam-tainted brokers.

Finance minister Yashwant Sinha, who made these announcements at a press conference here today, said a bailout package for the troubled mutual was possible but there would be no budgetary support for it.

Sinha also indicated that a special package would be announced later this week that would give small investors, trapped by the freeze in the low-return US 64, an exit option. However, he did not give any details of what the package might contain.

Sinha was at pains to emphasise that neither he nor anyone in the finance ministry had any inkling of what was going on in UTI and that the freeze on US 64 was presented as a fait accompli. He also said that that the finance ministry was neither involved nor had it influenced the decision-making at UTI.

He, however, ruled out the possibility of owning moral responsibility for the UTI fracas and resigning. “I don’t think that stage has been reached,” he said.

Sinha indulged in a bit of doublespeak when he tried to project the view that the finance ministry had been completely in the dark about the events in UTI. But in the very next breath he admitted “the finance secretary was informed two days before the board meeting through a letter (about the freeze on US-64) and I was told verbally on the morning of the board meeting...we could have stopped the board meet altogether but felt such a move could have an even more disastrous effect on consumer confidence.”

Sinha’s announcement of an independent probe into UTI affairs almost coincided with a statement issued by the Congress chief whip Priya Ranjan Dasmunsi threatening “a comprehensive investigation (into UTI’s affairs) without delay by a forum which we shall decide in the Lok Sabha.” The Left and centrist parties are supporting this move.

Sinha also indicated that efforts would be made to change the debt-equity ratio of the fund’s investments more towards debt and to bring UTI within Sebi’s purview.

The finance minister also said he would consider re-imposing a direct government nominee on UTI’s board so as to be able to better monitor the mutual.

Asked how he could claim to have been in the dark about the happenings at UTI when the media had been front-paging reports that said UTI had been picking up stocks favoured by scam tainted broker Ketan Mehta and that companies had resorted to heavy redemptions over the past three months, Sinha said he knew things were not hunky dory but was never given a full picture.

He claimed despite several letters to the UTI chairman, the finance ministry was never fully apprised about the state of the mutual’s finances. “The finance secretary contacted UTI chairman several times but was assured there was nothing to worry about,” he said.

Board defers decision

The trustees of UTI today considered alternatives to the freeze on US-64, but failed to agree on a exit route for investors. The board, which will meet again in a couple of days, has asked for more information before it makes up its mind.

“At the meeting held today, various alternatives prepared by the management to give an exit to small investors were discussed,” UTI said.

   

 
 
SIX REACH NEXT ROUND OF BIDDINGFOR FOURTH CELL LICENCE 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 9: 
Six telecom service providers—Bharti, Reliable Internet Services Ltd, Barakhamba Sales and Services Ltd, Escorts Telecommunications Limited, Birla AT&T and Ind Mobile—have been cleared to make financial bids for fourth cellular licences in 17 circles on Wednesday. The technical bids had closed on June 29.

The Reliance group, which had submitted two technical bids for 15 circles, has withdrawn the set of bids submitted by Reliance Communication Services Ltd. “We did not wish to lose out due to technical faults, which normally occur in such bidding processes,” a Reliance spokesperson said.

Reliance and Bharti have emerged as the leading contenders for the fourth cellular licences.

Reliable Internet Services Limited has bid for all the four metros—Delhi, Mumbai, Calcutta and Chennai—along with Andhra Pradesh, Gujarat, Maharashtra, Karnataka, Kerala, Punjab, Rajasthan, Tamil Nadu, Haryana, Uttar Pradesh East and West.

Bharti Cellular Ltd had bid for Calcutta and Mumbai along with Gujarat, Maharashtra, Kerala, Punjab, Tamil Nadu Haryana, Madhya Pradesh, Uttar Pradesh East and West.

Sources in communications ministry said, “The bid price is likely to be much lower than the bids held seven years ago. It is expected to be low since the cellular market has achieved stability in terms of number of subscribers and revenue. The stakes are high for those operators who are consolidating their business and for those focusing on expanding their footprint.”

“All the bidders are likely to move to the second round. It is the second round of bidding that will be tough,” sources added.

The stage is set for a direct fight between the two companies Reliance and Bharti in all the four metros and 17 state circles, provided both companies emerge successful in the financial bids too.

   

 
 
BEHIND-THE-SCENES BADLA BOOM 
 
 
BY ANIEK PAUL AND DEVADEEP PUROHIT
 
Calcutta, July 9: 
The badla monster is alive and kicking, but this time it is stalking the city like an undercover predator. The Sebi ban has failed to stifle it, investors cannot resist it.

It aims to rekindle speculation among small investors who are fighting shy of a market buffeted by turbulence. Investors can lend money and carry forward positions again in the unofficial badla market.

Speculative purchases are being financed by a number of brokers, who are lending at 2 per cent per month. At the same time, those with surplus cash can lend to brokers at rates of interest ranging between 14 to 24 per cent per annum. These funds are, in turn, used to finance speculative deals.

The introduction of the rolling settlement in the actively traded stocks has throttled speculation on bourses because positions have to be liquidated by the end of the day’s trading, or the delivery of stocks taken by paying the full price. In the hey-days of badla, one could hold on to speculative positions for a week, and even carry it forward. Calcutta has traditionally been a hotbed for unauthorised badla trading, too much of which brought Lyons Range to its knees in March.

Some city-based brokers are offering funds up to 75 per cent of the purchases, the rest paid by the investor in cash or share deposits. Investors get up to a week to liquidate open positions, as was the case during weekly settlements.

A key broker breathing new life into the badla business is a high-profile member of the Bombay Stock Exchange (BSE) who, until recently, was a member of its panels. A few Calcutta Stock Exchange (CSE) members are also part of the clique, but investigations carried out by the exchange today revealed that they were largely financing purchases on the National Stock Exchange (NSE) and BSE. The high profile BSE broker is operating the business through various sub-brokers who also have CSE and NSE terminals.

“These appear to be private deals between brokers and their clients which do not apparently threaten the system. We will crack down on them nevertheless,” CSE executive director Tapas Datta said.

The decline in business has pushed market intermediaries into illegal ventures, most of which appear to be interlinked. While some are offering assured annual returns on investments ranging between 100 and 150 per cent through newspaper insertions, others are running casino-like outfits.

“Around Rs 25 to Rs 30 crore has been raised by one of these intermediaries and we have invested a part of their funds in the market,” Piyush Kumar of Kumar Securities told the correspondents when they met him in his office posing as investors. Kumar is among those brokers who are offering badla financing and borrowing funds from the market.

To lure investors, the brokers are offering value-added services. Besides giving investors the scope to carry forward their positions, Sanjay Chandak, a CSE member with BSE and NSE terminals, offers an analyst’s guidance to investors.

Unscrupulous capital market intermediaries are fast spreading its tentacles in rural Bengal too. Many of them are acting in collusion with the established city brokers who are driving up stock prices of some paper companies to lure investors into buying these scrips.

Initially, the investors make profits, albeit notional, as the prices are artificially jacked up by manipulative trades, but eventually, they lose money once these fly-by-night operators disappear. The CSE and the Reserve Bank, concerned over these developments, have ordered investigations into these businesses.

   

 
 
LIC TO PICK UP CORP BANK STAKE AT 26% PREMIUM 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 9: 
Corporation Bank will place 24 million equity shares with Life Insurance Corporation (LIC) in a preferential offer at a price of Rs 196 each — a hefty premium of 26 per cent on its closing quote of Rs 156.05 on the Bombay Stock Exchange (BSE) today — in a deal worth Rs 470.4 crore.

The share hit a high of Rs 162 after opening at Rs 140.5, but eased a little to close at 156.05 amid 374 deals and a turnover of Rs 36.52 lakh. Last month, the two sides announced a strategic alliance under which LIC’s stake in the Mangalore-based bank would rise to 27 per cent from 12.32 per cent through a preferential offer. Many say the link-up will make it easier for the insurance behemoth to enter banking and help both sides leverage each other’s branch infrastructure and facilities.

While Corporation Bank will distribute life insurance policies through its network of 650 branches, LIC had announced that it would help the bank service its policy holders.

The preferential allotment will give Life Insurance Corp a berth on the board of the nationalised bank, whose paid-up capital will go up to Rs 144 crore from Rs 120 crore at present. Apart from tapping each other’s branch network in a mutually beneficial manner, the two sides are planning a merchant banking outfit and an information technology venture expected to focus on financial and insurance sectors.

There are expectations that LIC will boost its stake further after the government goes ahead with a long-declared plan to bring down its stake in public sector banks to 33 per cent. The Centre now holds 68 per cent in Corporation Bank, but that holding should decline to around 57 per cent later.

   

 
 
JPC TEAM TO CALL ON CSE TODAY 
 
 
BY A STAFF REPORTER
 
Calcutta, July 9: 
The Joint Parliamentary Committee (JPC) probing the recent stock market scam will interrogate the former broker-directors of the Calcutta Stock Exchange (CSE) who resigned under pressure from the Securities and Exchange Board of India (Sebi) following the payments crisis.

Speaking to The Telegraph, a senior JPC member said: “The CSE broker-directors would be called for independent depositions. It appears that they had influenced the administration of the bourse in a major way by defending the interest of various brokers, even at the cost of the exchange.”

Also under scrutiny are certain executives of the exchange. The JPC will meet CSE officials tomorrow to examine the functioning of the bourse, before it goes to Mumbai to scrutinise the way NSE, BSE, Sebi and RBI run their affairs.

Among the issues that would come up for discussion tomorrow are the delay in deactivating the terminals of the defaulters — Harish Biyani, Ashok Poddar and Dinesh Kumar Singhania — despite defaults on margin payments, the software snag which sent margin calculations awry, irregularities in the collection of margins and risk containment by the exchange and its failure in curbing unauthorised badla.

Sebi has, in its report to the JPC, mentioned that CSE failed to look into the allegations of unauthorised carry-forward of trades despite repeated reminders.

A day before the exchange meets the JPC, three of the defaulters — Harish Biyani, Ashok Poddar and Rajkumar Poddar — against whom action under section 138 of the Negotiable Instrument Act had been initiated by CSE for bouncing of cheques, obtained bails from the Bankshall Court. Similar action had been initiated by the bourse against Dinesh Kumar Singhania as well, but he did not appear.

Meanwhile, a trade at an abnormally low price of Rs 4 took place in the Infosys Technologies scrip today on CSE. Exchange authorities later expunged the deal and took action taken against the errant brokers.

   

 
 
SEBI WARNS ROGUE TRADERS AGAIN 
 
 
FROM DEVLIN ROY
 
New Delhi, July 9: 
The Securities and Exchange Board of India (Sebi) today warned that stringent action would be taken against rogue traders who have been throwing the system into a tizzy by punching false quotes and said stock exchanges were in the process of implementing an Order Verification System (OVS) to curb the practice.

Speaking after a two-hour board meeting here today, Sebi chairman D.R. Mehta said the disciplinary committee of Bombay Stock Exchange (BSE) had suspended two members—Angel Securities and Mahesh Kothari Shares and Stocks—for three months for punching wrong order rates into the system.

Mehta said the National Stock Exchange (NSE) has already de-activated the trading terminals of four members against whom the final orders are in the process of being passed. The Calcutta Stock Exchange (CSE) is in the process of looking into similar irregularities committed by its members, he added.

He said the BSE was in the process of implementing a full-fledged OVS to check abnormalities in price and quantity keyed into the trading system, which will replace the dummy circuit filter system currently being used.

“The National Stock Exchange (NSE) already had an OVS in place which was earlier being used to check trades valued at over Rs 2 crore. The system has now been modified to include price variations in excess of 20 per cent over the last traded price,” he said.

Mehta said the Sebi board also decided to retain the ban on mutual funds and companies from using celebrities as part of their advertisements either at the time of initial public offering or later.

The board also announced a correction in its guidelines issued on investments by mutual funds by clarifying that investments made by them in securities of unlisted venture capital funds would be up to a limit of five per cent of net assets in case of open-ended mutual funds and 10 per cent of net assets in case it is made by a close-ended scheme.

   

 
 
PERFORM-OR-PAY MANTRA AT DUNCAN 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, July 9: 
The city-based Duncan Goenka group has decided to introduce performance-linked salaries for its managing directors, vice-presidents and general managers.

Under a proposal put forward by the company, managers will have their salaries slashed by 12-15 per cent if they fail to achieve business targets; if they are successful in their quest, they could win average hikes as high as 30 per cent.

“Our whole human resource (HR) initiative has been revamped. The supervisory board set up under the leadership of well-known consultant Sumantra Ghosal has suggested that we implement these changes,” said G. P. Goenka, chairman of the Duncan Goenka group, which has 10 managing directors, apart from 120 vice-presidents and general managers.

Goenka, who has plans to sell some a cluster of non-core businesses, said his group is going ahead with a time-bound programme aimed at reviving all businesses of the group. “The companies which are not performing well have to be turned around so that they can fetch good price when they are sold.”

He said executives will get 100 per cent of their salaries if they meet the goals set out before them. If they better their targets, there is a provision for what the company calls “ad-hoc” increases. For instance, a managing director who earns Rs 13.3 lakh annually may get Rs 26 lakh if he realises targets. If he fails to make the grade however, his compensation will be whittled down by a 12-15 per cent on average.

“The targets, fixed after consultations with managing directors, are slightly stretched but are achievable nevertheless,” Goenka said. The new human resource scheme will be finalised this week and will be effective from April 1.

The company has unveiled new mode of appraisal for managers, based on a ‘360 degree’ system under which they are to be evaluated by themselves, seniors and subordinates. Customers will also rate executives who deal with them separately.

“About 40 per cent of the total remuneration is now linked to performance. In the next three years this would be made even stiffer, perhaps even 80 per cent,” Goenka said.

Meanwhile, Madhukar Misra, senior vice-president in the corporate office, has been promoted as the managing director of Star Paper. He will be replacing J. S. Neerav, who has been shifted to Bakelite Hylam in a similar designation.

   

 
 
INDAL IN TALKS TO PICK UP 51% IN UTKAL ALUMINA 
 
 
BY A STAFF REPORTER
 
Calcutta, July 9: 
Indian Aluminium Company (Indal) wants to buy a majority stake in Utkal Alumina Limited. The city-based Aditya Birla group company, which was taken over by Hindalco last year, has already initiated negotiations with Canadian aluminium major Alcan and Norwegian company Hydro in order to pick up a 51 per cent stake in the joint venture project.

Indal president and chief executive officer S.K. Tamotia told reporters after the 63rd annual general meeting of Indal here today that “negotiations are on and the matter will take sometime to crystallise.”

At present, Indal holds a 20 per cent stake in the Rs 4300-crore project, while Alcan has a 35 per cent holding and Hydro 45 per cent.

The investments made so far are proportionate to the equity held by the three promoters.

While hinting that Indal is keen to raise its stake, Tamotia denied the possibility of Alcan pulling out of the project.

“A new equity pattern will emerge only if we get a majority stake. And it is not possible for me to make any further comment on the issue,” Tamotia said.

Meanwhile, Indal has sought support from the Orissa government to revive Orissa Extrusions, a joint venture with Hydro, which has been referred to the Board for Industrial and Financial Reconstruction.

Tamotia said the Orissa government had been approached for concessions in sales tax and electricity tariff.

Asked whether Indal wants to pull out of the extrusion company, Tamotia said “the final decision will depend on the response of the Orissa government.”

Earlier in the AGM, vice-chairman of the company A.K. Agarwala said Indal is planning to expand capacities at Hirakud smelter, besides modernising the other facilities.

Agarwala said the company has declared a lower dividend of 40 per cent for the fiscal year 2000-01 because it needs to strengthen its reserves to fund future investment programmes.

He said the company is aiming at a 25 per cent growth in exports. Indal is also planning to tap markets in China and the Middle East.

When asked whether the Aditya Birla group would be interested in any of the aluminium PSUs, Agarwala said they were open to the idea and it would be discussed at the appropriate levels.

During the year in review, net sales grew 22 per cent to Rs 1283.4 crore. The post-tax profit of the company also increased from Rs 83.9 crore in 1999-2000 to Rs 116 crore during the last financial year.

   

 
 
RANBAXY NET UP 34% IN FIRST HALF 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 9: 
Ranbaxy Laboratories has posted a 34.2 per cent rise in net profit at Rs 106.7 crore for the six-month period ended June 30 as against Rs 79.5 crore in the corresponding period last year. In the reporting period, the company registered 18.2 per cent rise in turnover at Rs 945 crore as against Rs 799.2 crore last year.

While the pharma major’s second quarter net profit witnessed a jump of 22 per cent at Rs 49.3 crore as against Rs 40.4 crore last year, its turnover was up 17.9 per cent at Rs 499.3 crore as against 423.6 crore in fiscal 2000-01.

The company’s global sales for the period January-June stands at $ 269 million, a growth of 17 per cent. The key markets were the US, Brazil and western Europe. Dosage form sales in the overseas market constituted 40 per cent of global sales at $ 108 million, a growth of 46 per cent. The US market showed an impressive growth with H1 sales at $ 44 million, up 68 per cent over the previous year.

CEO and managing director D.S. Brar said Ranbaxy was aiming at a sales target of $ 1 billion by 2004.

Brian Tempest, president of Ranbaxy Laboratories, has been inducted into the board of directors of Ranbaxy (the parent company) during today’s meeting.

Brar said that 40 per cent of Ranbaxy’s R&D spend this year will be on innovation and discovery of drugs. During the quarter, the company entered into a collaboration with Vectura Limited for Novel Drug Delivery System (NDDS).

“In three to five years, Ranbaxy is to change contours from being a generic international company to a speciality international company,” Brar said.

Parry move

Chennai-based Parry Nutraceuticals, a part of the Rs 3,800 crore Murugappa group, is planning to more than double its turnover to Rs 17 crore in fiscal 2001-02. “The company is looking at achieving a turnover of Rs 17 crore this year as against Rs 7 crore last year,” Ram Bajekal, chief executive officer told newspersons after introducing its two brands today.

Parry made a foray in Mumbai with its flagship brands — Spirulina and Natural Beta Carotene, he said. These products have a presence in south India.

   

 
 
FOREIGN EXCHANGE, BULLION, STOCK INDICES 
 
 
 
 

Foreign Exchange

US $1	Rs. 47.15	HK $1	Rs. 5.95*
UK £1	Rs. 66.29	SW Fr 1	Rs. 25.95*
Euro	Rs. 39.87	Sing $1	Rs. 25.45*
Yen 100	Rs. 37.58	Aus $1	Rs. 23.60*
*SBI TC buying rates; others are forex market closing rates

Bullion

Calcutta			Bombay

Gold Std (10gm)	Rs.4435		Gold Std(10 gm)	Rs. 4360
Gold 22 carat	Rs.4190		Gold 22 carat	N.A.
Silver bar (Kg)	Rs.7150		Silver (Kg)	Rs. 7300
Silver portion	Rs.7250		Silver portion	N.A.

Stock Indices

Sensex		3290.81		- 14.97
BSE-100		1547.76		-  4.52
S&P CNX Nifty	1059.50		-  5.60
Calcutta	 120.28		-  0.40
Skindia GDR	 580.86		-  0.11
   
 

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