Sebi hurry to hike creeping limit may not draw applause
Reserve price for IBP may be set at Rs 1,000 cr
Mother Dairy taste for bhujia
FIs to take stock of Modi Rubber stake issue
Coke in dark about its waiver plea
Tata Info in a bind over FII stake
Mindteck to spend $ 2.2 m on software centre
Duty structure irks LG Hotline
Sebi tracks modus operandi of Doe Jones

Mumbai, Oct. 6: 
The Securities and Exchange Board of India’s (Sebi) proposal to hike the creeping acquisition limit to 10 per cent is unlikely to enthuse Indian promoters, as few have so far used the previous limit of 5 per cent. The proposal, which has been circulated among board members, will have to be ratified at the board meeting, whose date is yet to be fixed, Sebi chairman D. R. Mehta told The Telegraph.

Interestingly, Sebi’s proposal comes at a time when the Bhagwati panel on take-overs is yet to make its recommendations and is being perceived as more of a bid to boost market confidence than anything else.

Sources within the market regulator say that any revisions in the take-over norms can be made only after the panel makes its recommendations. However, the panel has so far only deliberated a proposal to allow a “one-time exemption for Indian promoters”.

The Bhagwati panel was contemplating such a move in an effort to allow promoters to hike their equity stake in companies to decent levels, to thwart take-over bids by overseas firms.

The panel’s proposal arose out of the perceived “vulnerability” of Indian promoters in the post-liberalisation era to threats from foreign shores rather than domestic predators.

Hence, the fact that Sebi is going ahead with the proposal to hike the creeping acquisition limit, without waiting for the panel’s recommendation is unprecedented, sources said.

Sebi move is perceived as being in a hurry to implement the revised norms, as both the finance ministry and the Reserve Bank have already introduced measures to bring about a change in capital market sentiments.

The market regulator itself does not expect promoters to make use of the increased acquisition limit. “The move is an effort on our part to restore market confidence,” a Sebi official said. The new limit will be in force till the end of this fiscal.

It is unclear, however, whether any company will use the revised limit in a year when the economy is experiencing a painful slowdown, which has directly affected their profits. While the revised limits provide promoters an opportunity to ward off take-over threats, very few have actually used the existing creeping acquisition norms, say marketmen.

The Tata and Reliance groups are among the few to have exercised the creeping acquisition route to bolster their holdings, while the rest have preferred to use the buyback route to strengthen their presence. A majority of companies, like Great Eastern Shipping, have used the corporate buyback route to buy shares and extinguish them. This indirectly enables the promoters to increase their stakes in their companies at no cost.


Calcutta, Oct. 6: 
The government is likely to peg the reserve price for divestment of its 33.58 per cent stake in IBP at around Rs 1,000 crore, IBP officials said.

Price bids are expected to be invited later this month, and the divestment is scheduled to be completed by December, IBP chairman S.N. Mathur said.

“The government expects to get well over Rs 1,000 crore for its 33 per cent stake,” IBP sources said.

There are 12 players in the race for the Rs 8,388 crore petroleum marketing company, in which the government is divesting management control along with 33.58 per cent shareholding. The government, at present, holds a 59.58 per cent stake in the company.

Though the government plans to complete the process by the end of this calendar year, some of the companies that have expressed interest in IBP want more clarifications on the post-APM scenario before submitting price bids. The government is withdrawing pricing control on petroleum products from April next year.

Further, the government has to make up its mind on whether or not the company acquiring IBP will have to invest Rs 2,000 crore in infrastructure in the oil sector over the next 10 years.

The government had earlier stipulated that only those companies which have already invested that amount would be allowed to bid for IBP.

The Centre has already softened its stand to some extent, but if it decides to go ahead with this condition, it will have to figure out some way of ensuring that the company acquiring IBP actually invests Rs 2,000 crore. “Though this does not appear to be easy, it is premature to presume that the government is going to withdraw this condition,” top-level IBP officials said.

The IBP management says that the government will clear the Rs 350 crore Oil Co-ordination Committee (OCC) dues to IBP before the divestment is over. This amount will be used entirely to retire the company’s borrowings. IBP has already divested its stake in Numaligarh Refineries for Rs 172.56 crore and used the amount to retire debts.


New Delhi, Oct. 6: 
Mother Dairy is set to storm yet another bastion: the Rs 200 crore salted foods market.

After milk, vegetables, yoghurt and ice creams, Mother Dairy is now eyeing the namkeen and bhujia segment. The company plans to enter the market by the end of this month and has lined up five varieties, including aloo bhujia, a khatta-mitha mixture, fried and salted moong dal, and salted peanuts.

In fact, Mother Dairy Delhi, an NDDB project, spun off last year into a separate company — Mother Dairy Fruit &Vegetables Ltd (MDFVL) — also intends to enter the bread segment around the same time. However, the company has not yet decided whether to stick to the Mother Dairy brand, or come up with a different brand name for the new products.

Initially the namkeens will be retailed through its 750 milk shops and 250 Safal vegetable shops in Delhi. However, since Mother Dairy is keen on going national with its product range, the company is also drawing up plans to leverage the co-operative framework in other states, set up with assistance from NDDB.

Although the namkeen market is a large one, most of the players belong to the unorganised sector. The organised sector, dominated by Haldiram, comprises only about 25 per cent of this market, according to industry sources.

Other major players include Frito Lay, Pepsi’s snack food division, which has five variants in the traditional namkeens variety. Pepsi also has an alliance with another key player Bikanerwala. Frito Lay also has about eight innovative namkeens in its portfolio.

The new products introduced by MDFVL include sweet curd in the 100gm pack, as well as the normal curd in 100gm, 200gm and 400gm pack sizes. Apart from providing stiff competition to established players in the ice cream market, the company is present in segments like sweet lassi, frozen aloo tikki, apart from its mainstay of plain milk.

Senior officials said MDDFL’s expected turnover for the year ended March this year was Rs 950 crore. The official figures have not been tabulated as yet.


New Delhi, Oct. 6: 
The heads of financial institutions (FI) are planning to meet in Delhi next week to thrash out a common strategy to deal with the Modi Rubber Ltd (MRL) issue.

IFCI chairman V.P. Singh said the FI chiefs were scheduled to discuss the MRL issue on Friday after their meeting with finance minister Yashwant Sinha. He said media reports that claimed that the meeting had been inconclusive were incorrect.

“There was no formal meeting on this issue and so there was no question of arriving at a consensus,” he said, adding that some like LIC chairman G.N. Bajpai had left soon after the meeting with the finance minister.

According to sources in IDBI, there is no question of the FIs buckling to pressure exerted by the Modis who now claim to have 46 per cent of the equity now that the total voting capital has come down to 91 per cent following the freeze ordered by the Mumbai high court on LIC’s 9 per cent stake.

MRL chairman and FI nominee T. Panduranga Rao said there was no proposal to revalue the company.


New Delhi, Oct. 6: 
Coca-Cola has said that it has not received any official communication from the government regarding the rejection of its application to the Foreign Investment promotion Board (FIPB) for a waiver of the clause that makes it mandatory for its bottling subsidiary — Hindustan Coca Cola Beverages Private Ltd — to divest a 49 per cent stake by June, 2002. The FIPB is expected to reject the application following the objections raised by the department of economic affairs and the ministry of food processing industries.

One of the arguments advanced by Coke for seeking a waiver collapsed when Sebi chairman D.R. Mehta said companies with losses could access the market through the bookbuilding route. Coca-Cola had maintained that HCCB would not be able to enter the market because of a Sebi stipulation that companies had to have a three-year profitability record to float an issue. It said HCCB had accumulated losses of Rs 2,178 crore.“Sebi usually goes by this criterion and that is the basis on which we made our application,” said a company spokesman. “It is not a question of whether or not we were aware of the book-building method. The question is who will invest in a company that has accumulated losses of Rs 2,178 crore?”

Asked if HCCB would now adopt the book-building route, the spokesman said, “That is a hypothetical situation. We have made an application to the government stating our case. After knowing the government decision, we will adopt our next course of action.”


Mumbai, Oct. 6: 
The Reserve Bank’s decision to halt foreign investment in Tata Infomedia — Tata Donelley earlier — has renewed the debate on overseas holding in publishing firms. The firm, which has an FII holding of 8 per cent, finds itself short of funds for expansion after foreign investors were barred from purchasing shares of print media companies.

Tata Infomedia managing director Hoshang Billimoria told The Telegraph: “We are hoping that this policy will be clarified soon. It has hampered our growth, our share values.”

The move to ban FII investment in publishing, the company says, is a retrograde measure which places print media at a disadvantage against other segments in which there are no curbs on the scale of foreign investment. “Why are FIIs shady when they invest in print media and angels when they invest elsewhere?” he wondered.

He expects the contentious issue to be reviewed soon. At the same time, FIIs which have already invested in the company are willing to wait and bide their time.

Analysts tracking the sector are of the opinion that the issue turned into a hot potato when Mid-Day Multi Media came out with its public issue. The RBI issued a notification on February 6, 2001 prohibiting FIIs, overseas corporate bodies and non-resident Indians (NRIs) from purchasing shares of companies in the print media.

Since it was a prospective legislation, the FIIs which already owned shares in Tata Infomedia have been allowed to hold on to their stake. But, the freeze has left the company in a bind because it cannot ask the foreign funds to liquidate their holdings in favour of others. Whatever the outcome, the FIIs are entitled to ask how and why investment policies are changed midstream. One of them is ASK Raymond James, the US-based foreign fund, which owns 4.3 per cent of the Tata group firm.

Several publishers have made representations to the government on the issue of keeping FIIs out of print media. They argue that the government cannot adopt double standards in the way it treats foreign investment in media, especially if TV networks face no restrictions.

“Civil aviation, banking and defence sectors are open to foreign direct investment. So, why is the print media considered a holy cow?” an FII broker complained.

Tata Infomedia had applied to the information and broadcasting ministry in July for registration of two new special interest magazines (SIMs). The ministry, supposed to respond within 30 days, has not sent a word.

The registration is important for the company, which sees special interest magazines as potential revenue spinners that can drive future growth.

Trends in advanced markets such as America also suggest that all sections of the print media, barring SIMs, have seen falling growth rates. According to Billimoria, the magazines under Tata Infomedia are doing well. That includes Yellow Pages, by far the largest listing business in India.

The company’s special interest publication division launched its fifth title Auto Monitor, a fortnightly magazine targeted at the automobile trade and industry. Its other magazines, such as Better Photography, Search, Overdrive and AV Max, continue to be market leaders in their respective segments.


Calcutta, Oct. 6: 
The Bangalore-based $ 15 million Mindteck has outlined plans to invest around $2.25 million in setting up a software development centre and centres of excellence in the Calcutta and Bangalore.

The Bahrain-based TAIB Bank-owned company has already set up a CAD/CAM development centre with an investment of $ 250,000 in Calcutta, which is expected to commence operations in December this year.

“Though our head office will remain in Bangalore, we have decided to make Calcutta the centre of our software and developmental activities, and have lined up huge investments for various activities in the city,” Sumit Ganguli, group chief executive officer of Mindteck said.

Ganguli said the company will employ around 400 people in the next three years.

The e-solutions and embedded technology company also plans to set up two centre of excellence in Calcutta and Bangalore with an investment of $ 1.5 million. These centres will mainly do developmental work and build specific skills and capabilities for the shipping and maritime and insurance sector. The company has already signed up a major client in the eastern region, though Ganguli refused to divulge details.

“Mindteck has set a revenue generation target of $ 100 million by 2005,” Ganguli added.


New Delhi, Oct. 6: 
LG Hotline CPT Ltd, the colour picture tubes manufacturer, has taken the government to court over what it alleges is the flawed duty structure on production of colour display tubes (CDT), used in computer monitors.

The company is peeved with the fact that while inputs for making CDTs such as capital goods, glass parts, chemicals, neck tubing and spare parts, are taxed between 5-35 per cent, duty on the finished product itself is zero.

This, it points out, makes it uneconomical for the company to make CDTs in the country instead of importing them, which it does now.

“We planned to invest Rs 200 crore to set up a CDT manufacturing line in the country, which has a market for 2 million CDTs. We are ready to invest at a time when almost everyone else is scaling down investment plans due to the slowdown, but the government is creating inexplicable hassles with such a flawed duty structure,” said V. N. Masaldan, director of LG Hotline.

LG Hotline, which is a 50:50 venture between LG Worldwide of South Korea and the Hotline group, had pleaded its case before both the finance ministry and the ministry of information technology (MIT), seeking extension of duty concessions to CDT components. Although the MIT had subsequently made specific recommendations on the issue, the finance ministry failed to act upon it.

Under the three-tier tariff structure, finished goods attract the peak rate of duty, components are taxed on a slightly lower grade, and the lowest rate of tariffs is on raw materials. But the inverted duty structure has, in this case, made the manufacturing plan unviable to the company.

“The government is in a lose-lose situation in this case. For imports they are using up precious foreign currency—which comes to Rs 2000 crore in the past five years. If they adjust these levies, they might not get the same revenues but they will see greater investment and a rise in employment,” Masaldan pointed out.

“The government may have many problems and I am not asking the high court to rule on fiscal policy. But at the same time I should know on what basis the government is not allowing this industry to develop. Under the present duty structure, the product cannot even be assembled here, leave alone manufacturing it. In its response to our petition, the ministry has argued that the duty structure cannot be changed offhand as other industries manufacturing the same goods need to be protected. But the fact is that no such industry exists!” he added.

LG Hotline CPT Ltd, with Rs 500 crore turnover, manufactures 1.5 lakh CPTs a month in the mid-size category.


New Delhi, Oct. 6: 
You have heard of Dow Jones, and possibly of John Doe—a moniker used to either conceal the identity of a person or pin a tag on an unidentified bodybag. But what about Doe Jones?

The Securities and Exchange Board of India (Sebi) has ripped the mask of the entities that were at the core of the shenanigans of a triad of Calcutta brokers—Dinesh Kumar Singhania, Ashok Poddar and Harish Biyani—last March.

And that brings us to Doe Jones—the Dinesh Singhania outfit which like the other entities resorted to circular trading and order matching to rig stock prices precipitating a payment crisis on the Calcutta Stock Exchange in the aftermath of the stock scam that knocked the bottom out of the bourses in March.

Sebi’s interim report nails the three brokers and uncovers the methods they used to manipulate prices. The charges are serious ranging from matched order/trades to violation of the exposure limits, from transgressing carryforward limits to circular trading.

The dramatis personae reads like this: the D.K. Singhania group entities comprising D.K. Singhania himself, Tripoli Consultancy, Arihant Exim and Doe Jones; the Ashok Poddar group comprising Poddar himself, Prema Poddar, Ratanlal Poddar and R.K. Poddar; and the Harish Biyani group which consisted of Harish Biyani the broker and Harish Biyani & Co, the broking firm.

For the novitiate, circular trading takes place when a group of brokers rapidly trade shares among themselves, manipulating the price in such a manner that it becomes the benchmark for the market. Usually, this is possible in share counters where the liquidity is low and where there aren’t too many players.

A matched trade is a direct transaction between two brokers who buy or sell a certain number of shares and reverse the deal at the end of an agreed period. The purpose is again to manipulate the price which is usually out of whack with the market’s perception of the stock.

The Sebi report has unearthed three instances of circular trading in shares of DSQ Software and one of Himachal Futuristic Communications Ltd (HFCL) besides four matched trades in DSQ Software and two of HFCL.

The first instance of circular trading recorded by Sebi took place in settlement number 145 (which ended on February 8, 2001) where 1.85 lakh shares of DSQ Software were rotated between Ashok Poddar, Biyani and Prema Poddar.

In the next settlement, 1.1 lakh shares of DSQ Software were similarly traded among Ashok Poddar, Prema Poddar and Ratanlal Poddar. In settlement number 149 (ended March 8), there was circular trading of 90,000 shares between N. K. Balsaria, Arihant Exim and Doe Jones. And in settlement number 147 (ended February 22), nearly 77,000 shares of HFCL were rotated between K.K. Dugar, Ashok Poddar, Doe Jones, BLB Shares and R.A. Kasera.

In the case of matched trades, Ashok Poddar and Doe Jones exchanged 89,000 shares of HFCL in settlement number 141 (ended January 11), which also saw a similar exchange of nearly 60,000 shares of HFCL between Ashok Poddar and K.K. Dugar and Company. The matched trades also took place in settlement number of 145 between Harish Biyani and Prema Poddar, and Ratanlal and Prema Poddar and continued for the next four settlements with the brokers involved being the Poddar, Biyani and Singhania groups.

The investigations— conducted by the Sebi team in first week of May to determine the true position of the payment crisis and the factors responsible for it, examine the risk management system of the exchange and the functioning of the surveillance systems of the exchange—has uncovered gross irregularities in the functioning of CSE and consequent deviation from laid-down norms which finally led to the payment crisis in settlement numbers 148 (ended March 1), 149 and 150 (ended March 15).

According to the report, the problems surfaced last year when the market started getting skewed towards five big scrips—HFCL, Satyam, Global Telesystems and Zee Telefilms (all of part of the so-called K-10 group—stocks that were favoured by Big Bull Ketan Parekh). Most of the trades were purely speculative with actual delivery-based business amounting to only 5-10 per cent.

Due to the speculative nature of these deals, brokers started indulging in malpractices when they were unable to pay for the shares they had bought. The problems started in settlement number 148 in which the top 10 brokers had a net obligation of Rs 250.98 crore amounting to nearly 77 per cent of the total net funds obligation of Rs 326 crore. By the next settlement, the net payable by top 10 brokers had risen to Rs 272.8 crore. Finally, in settlement number 150, it touched Rs 230 crore—at which point the market could not sustain such a huge overhang of deals leading to a default of Rs 61 crore. The final default tally rose to Rs 91.38 crore.

The defaulting brokers in settlement number 148 included Singhania who had a net outstanding of Rs 216.9 crore, while Poddar racked up an outstanding of Rs 128.04 crore and Biyani Rs 79.13 crore.

In settlement number 149, Singhania had net outstandings of Rs 56.68 crore, Poddar had Rs 93.43 crore and Biyani logged Rs 31.74 crore. The report said the defaults arose because of a lax surveillance system and deficiencies in the risk management system. There was a violation of the exposure limits to the tune of Rs 93.94 crore and Rs 109.40 crore on March 1 and 2 by Singhania, Rs 96.41 crore and Rs 104.97 crore by Arihant Exim, Rs 48.37 crore by Doe Jones, Rs 5.14 by Tripoli, Rs 64.6 crore by Biyani, Rs 17.4 crore by Biyani Securities and Rs 75.87 crore by Poddar.


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