Probe puts seven OCBs on stock scam roster
SBI Caps in dumb act on Cyberspace
Bank of Baroda set to consolidate subsidiaries
Mitsui, Shanghai Electric eye Bakreswar venture
China’s WTO entry may turn heat on local IT firms
Capital norms hope for foreign banks

 
 
PROBE PUTS SEVEN OCBS ON STOCK SCAM ROSTER 
 
 
BY ANIEK PAUL
 
Calcutta, July 29: 
The Joint Parliamentary Committee (JPC) probing the recent stock market scam is of the view that seven Mauritius-based overseas corporate bodies (OCBs) were the true beneficiaries of the upheveal on exchanges.

The ownership of these OCBs is being scrutinised at present, and the hunt is likely to open a Pandora’s box. A senior JPC member said their inference is based on recent reports filed by the Securities and Exchange Board of India (Sebi).

“We have conclusive evidence that the seven Mauritius-based OCBs manipulated the markets by trading through foreign institutional investors (FIIs) and siphoned huge amounts out of India.

They appear to have been promoted by various companies here. Their ownership will enable us to identify the individuals who benefited from the scam,” the JPC member added.

Confirming the development, Sebi chairman D.R. Mehta said investigation into the matter is on, and it may throw up more OCBs who gained from the scam.

“Of late, the Central Bureau of Investigation (CBI) and the Sebi are working in tandem,” he added.

He said the Indian companies being probed for links with the OCBs made substantial investments in the stock markets through brokers, including Ketan Parekh.

“These firms saw their profits and tax liabilities decline because of huge provisions made for doubtful advances to marketmen, but their promoters have benefited,” the JPC member told The Telegraph.

The promoters stashed away their gains outside the country through the OCBs. Not only has the government lost revenues due to lower taxable income, but the shareholders of these companies have been cheated because the doubtful advances have depressed profits, the JPC member said. The committee will meet in two to three days to take stock of the developments.

“We will ask the finance ministry to employ the various investigative agencies, including the CBI and the Enforcement Directorate (ED), to determine the ownership of these OCBs and whether there was a violation of the Fera or Fema,” the JPC member added. There is a possibility that the promoters will be asked to depose before the House panel, but not before it has collected enough evidence that links their companies to the OCBs.

In its preliminary report on the scam, Sebi had identified five OCBs — European Investment, Far East Investment, Wakefield Holding, Brentfield Holdings and Kensington Investment — for having entered into large deals through various FIIs close to Parekh. These OCBs traded through the mechanism of participatory notes, which allowed investors who are otherwise not eligible to trade in India to do so.

The JPC member said Sebi has hinted at possible misuse of the system by FIIs, and recommendations are likely to be made for amending the automatic repatriation and investment facilities offered to them.

Speaking on the report submitted by the RBI on the role of banks in market manipulation, the JPC member said: “No public sector bank appears to be involved in a big way in the scam. But the role of a large number of development financial institutions appear to be suspect. There are IDBI and IFCI, to name a few. A detailed probe is currently under way.

   

 
 
SBI CAPS IN DUMB ACT ON CYBERSPACE 
 
 
FROM SATISH JOHN
 
Mumbai, July 29: 
SBI Capital Markets’ “glowing report” on Cyberspace Infosys (CIL) was prepared by a team of research experts who hardly had the skills to scan infotech firms.

An SBI Caps official said the analyst who examined the business models and finances of the Lucknow-based Cyberspace Infosys, is an expert on oil, petrochemicals and entertainment. An SBI Caps spokesperson confirmed this, but said the analyst does not work for the company any more.

What is significant is that the team looking at the viability of Cyberspace Infosys as an investment proposition was packed with analysts who essentially specialised in strategy, metals, pharmaceuticals, oil, petrochemicals, entertainment, debt, and automobiles — not information technology upstarts.SBI Caps officials insist that the report was a research document and not a “buy report”. “We were one of the arrangers. We were retained to place Cyberspace’s equity privately.”

The placement, however, drew a blank with none of SBI Caps’ clients subscribing to it. In an effort to blunt accusations of foul play in the whole transaction, SBI Caps said it was Cyberspace which made the presentation before its clients.

In hindsight, said the SBI Caps official, the failure to get even one subscriber to the private placement has turned out to be a blessing in disguise for its business as a merchant banker. SBI Caps has a list of high-profile clients, including its main promoter, State Bank of India, and its seven associate banks. Then, there are mutual funds, both local and foreign.

All of them sat through the presentations, but none said they were convinced that investing in Cyberspace was a good business bet. As a result, the placement went abegging.

Research gaps

The SBI Caps research report on Cyberspace Infosys has thrown up some interesting facts. According to former Unit Trust of India (UTI) chairman P.S. Subramanyam’s lawyer Satish Maneshinde, finance minister Yashwant Sinha had, on many occasions, nudged the mutual fund major to invest in companies in Bihar and Uttar Pradesh.

Curiously, one of Cyberspace’s biggest customers during the time of the private placement was the Maharashtra government. The state had already placed an order with the company for installing and managing 3500 seats of Lotus Notes.

“This is one of the largest installation of Lotus Notes anywhere in south-east Asia,” the research report said.

The report, which listed eight positives and six concerns for prospective investors, had highlighted the strong senior management team and its associations with global majors like Microsoft and IBM as some of the strengths of the company. The fact that the company bagged such a lucrative deal from the Maharashtra government has been projected by the research team as a major achievement and a seal of approval.

Later, however, the worries were watered down, and the first concern shown was the fact that Cyberspace was a financial services company “known as Century International Finance”. In the same paragraph, the report claimed “the company has no outstanding debt or liabilities in its line of business”.

   

 
 
BANK OF BARODA SET TO CONSOLIDATE SUBSIDIARIES 
 
 
FROM DEVLIN ROY
 
New Delhi, July 29: 
Bank of Baroda (BoB) has embarked upon an aggressive strategy of expanding and restructuring its four domestic subsidiaries by entering into new businesses apart from making a strategic sale to foreign investors.

Speaking to The Telegraph, BoB chairman P.S. Shenoy said the bank has drawn up expansion plans for all four of its subsidiaries — BoB Capital Markets, BoB Cards, BoB Housing Finance and BoB Asset Management Company.

As far as BoB Housing is concerned, plans include opening more branches, especially in the rural areas of Gujarat, Maharashtra and Rajasthan. The company, which is a joint-venture with the National Housing Bank, turned up an income of Rs 45.9 crore and net profit of Rs 8.8 crore during 2000-01. “Bank of Baroda will also raise resources for the subsidiary by divesting a part of its stake through an initial public offering (IPO) later this fiscal,” Shenoy said.

The bank is scouting for a foreign partner for its mutual fund subsidiary BoB Asset Management, through an equity selloff.

The company has already received approval from the Securities and Exchange Board of India (Sebi) to float two more mutual fund schemes — balanced and debt funds — but is yet to firm up the launch dates.

BoB AMC will also hawk the insurance products of the bank once the parent gets the approval for the same from the Reserve Bank of India (RBI) and the Insurance Regulatory and Development Authority (IRDA) to set up its insurance business.

BoB Capital, which is essentially into the business of merchant banking, is all set to enter the primary dealership arena. It received the nod to go ahead with its primary dealership foray from the RBI a few days back. BoB Caps, which earned Rs 1.09 crore in 2000-01, from activities including merchant banking, plans to deal in government securities for both big and retail investors, through its existing branches and those of the parent, Shenoy said.

As for the fourth subsidiary, BoB Cards, the bank plans to launch co-branded cards and enter into a strategic tieup with a leading foreign bank. BoB Cards turned up a net profit of Rs 1.1 crore on a total income of Rs 32.5 crore in 2000-01.

“We have one of the highest number of foreign branches and have already launched global credit cards. The entry of a foreign partner in this venture is sure to boost the competitive advantage of BoB Cards,” Shenoy added.

   

 
 
MITSUI, SHANGHAI ELECTRIC EYE BAKRESWAR VENTURE 
 
 
BY SUTANUKA GHOSAL
 
Calcutta, July 29: 
Mitsui & Co of Japan and Shanghai Electric Corporation (SEC) of China are keen on investing in a joint venture for the fourth and fifth units of Bakreswar Thermal Power Plant.

The managing director of West Bengal Power Development Corporation (WBPDCL), B.K. Paul said: “They are interested in a joint venture, as well as investing as EPC contractors, and have sent their proposals to us. We are now examining their proposals.”

Shanghai Electric Corporation, the world’s fourth largest power equipment company, is keen on entering India in a big way and has also initiated talks with BSES and L&T to explore various options, including setting up power projects in the country and abroad.

While the state government has received proposals from these two companies, it is keen to bag a Rs 1,590 crore loan from the Japan Bank of International Cooperation (JBIC).

The eagerness of the government to avail of the JBIC loan comes in the wake of US firm Ogden Corporation’s decision to pull out from the project. Paul said Ogden has decided against investing in Asia.

The Central Electricity Authority has already approved the Bakreswar Thermal Power Plant’s proposal for the Japan Bank of International Cooperation loan. “Our proposal has been approved by the Union finance and power ministries. The central government has now sent the proposal to the Japanese government.”

Speaking to The Telegraph, state power minister Mrinal Banerjee said, “The central government has accepted our proposal to treat the fourth and fifth units as ongoing projects and has recommended the same to the JBIC.”

The first three units of the Bakreswar Power Plant were made operational in 1999 with aid from the Overseas Economic Cooperation Fund (OECF). The three units of the plant, as well as the proposed fourth and fifth units, have a capacity of 210 MW each.

At present, the government is acquiring land for the Gouripore thermal power plant (125MW x 2) near Naihati.

“We are looking for land to dump the flyash that will be generated from the plant,” the minister added. In the meantime, the government has applied for a Rs 750-crore loan from the Power Finance Corporation.

“We are now looking for a financial tieup for our Sagardighi Power project, which will be carried out in three stages — 250MW x 2, 250MW x 2 and 500 MW x 2. In the third stage, we would like to set up gas-based plants,” Banerjee said.

Besides, Bengal will allow captive hydel power projects to be set up in the state.

   

 
 
CHINA’S WTO ENTRY MAY TURN HEAT ON LOCAL IT FIRMS 
 
 
FROM OUR CORRESPONDENT
 
New Delhi, July 29: 
The information technology sector is likely to face the heat from Chinese companies once China joins the World Trade Organisation, which is expected by the end of this year.

Currently, India has an edge over China in the IT sector. The Chinese would catch up soon unless India takes adequate measures, warns Jairam Ramesh, secretary, economic affairs department of the All India Congress Committee.

“The Chinese are investing heavily in this sector and several Chinese companies have set up bases in Bangalore to closely study the competitiveness of the Indian IT conglomerates, such as, Infosys Technologies and others,” said Ramesh.

According to him, the Chinese government is preparing mainland China to become the hub of software development. Taiwan is already strong in the hardware segment.

Speaking at a seminar on China: How is it going to Impact India? organised by the Confederation of Indian Industries Ramesh said, “The China-Taiwan nexus will pose a serious threat to the Indian IT sector.”

He added that China would also impact the pharmaceutical and textiles.

To meet the threat in textiles sector, Ramesh suggested that, “An enabling policy environment has to be created, otherwise India’s share in the textile market would further shrink.”

With the dismantling of quotas, this sector would be under pressure.

   

 
 
CAPITAL NORMS HOPE FOR FOREIGN BANKS 
 
 
FROM OUR CORRESPONDENT
 
Mumbai, July 29: 
The Reserve Bank of India (RBI) is likely to give foreign banks an extension of one year to bring in more capital. This follows an earlier RBI diktat which barred them from treating their external commercial lending to Indian companies as part of Tier I capital.

Sources close to the central bank said that on a case to case basis, it is “positively inclined” to grant foreign banks an extension of time if such an application is made.

“The RBI has said that if there is a genuine difficulty, it will not disagree for granting an extension of time,” said an official from a foreign bank.

Around five foreign banks have applied for an extension. The central bank is unlikely to grant requests which have sought extension for more than a year. Some of the foreign banks, it is learnt, have sought extension of around three years.

An official from the central bank confirmed that it has received representations from four to five banks. RBI would “not disagree” to grant extensions in the event of a “genuine difficulty” faced by these banks, he added.

Earlier, RBI had directed the foreign banks not to include their loans to Indian companies through the ECB route from March 31, 2002. The RBI governor Bimal Jalan had, in the lean season credit policy, also brought down the foreign banks’ exposure limit to a single company to 15 per cent from 20 per cent.

Such banks would also have to attain a 10 per cent capital adequacy ratio by this year.

Sources said that due to this direction, these banks would not only have to bring down their exposure limits, but also bring in fresh capital so as to maintain their capital adequacy ratio.

The development has come at a time when some of the foreign banks, particularly those having a smaller base and have reported poor performances in recent times, are having a second look at their operations in the country.

   
 

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