Ashish Rukhaiyar & Reena Zachariah
MUMBAI
Dec 30, 2008
ASIA’S oldest exchange, Bombay Stock Exchange (BSE), now has two foreign nominees on its board. According to people familiar with the development, BSE has inducted Singapore Exchange (SGX) chief financial officer Seck Wai Kwong and Eurex chief executive Andreas Preuss on its board. Eurex is jointly operated by Deutsche Borse AG and SIX Swiss Exchange.
SGX and Deutsche Borse AG hold 5% each in BSE. The development was confirmed to ET by one of the BSE board members. According to this member, “two new members have been inducted on the board of the exchange recently as shareholder directors from Singapore Stock Exchange and Deutsche Bvrse.”
However, a BSE spokesperson said only Mr Kwong of SGX has been inducted on the board. “Seck Wai Kwong has come on board on November 8, 2008, and the process of inducting a nominee of Deutsche Bvrse is on at present,” said an official in response to an email query. The BSE website, however, has no mention of the appointment of Mr Kwong. To this the spokesperson responded: “Our website is being updated.”
SGX and Deutsche Borse are the only two foreign exchanges to hold stakes of 5% each in BSE. The earlier demutualisation norms allowed foreign entities to hold a maximum of 5% in any Indian exchange. The latest amendments have hiked this limit to 15% although none of the foreign shareholders have, till date, increased their holdings beyond 5%.
While BSE has only recently inducted representatives of foreign shareholders on its board, the National Stock Exchange (NSE) did it in 2007 when NYSE Euronext got its nominee on the board of India’s largest stock exchange. NSE’s foreign shareholders include Goldman Sachs, General Atlantic and Softbank Asian Infrastructure Fund, among others.
On a different note, the BSE board is slated to meet on January 10, 2009, and there would be “at least some discussions related to the new chief executive,” of the exchange. It is more than four months since Rajnikant Patel resigned as managing director and CEO of the exchange.
Wednesday 31 December 2008
Fence sitters take baby steps to D-Street
Broking Firms Report Rise In New Active Demat
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Accounts As Investors See Merit In Selective Buying
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Dec 22, 2008
THE recent rise in benchmark indices seems to have attracted many new investors who had been sitting on the sidelines for quite some time. Leading brokerages like ICICI Direct, Reliance Money, Angel and Sharekhan have registered a rise in the number of new active demat accounts in November and are optimistic about the near future, too. Broking firms attribute this trend to the growing number of investors who feel that the market may have bottomed out and the time has come for selective buying.
Broking firms define fresh active demat accounts as those where the client starts trading immediately after opening the account. In the past few months, while fresh demat accounts were being opened, most remained dormant before registering the maiden transaction.
ICICI Direct, which has one of the highest numbers of demat accounts in the country, witnessed 30% of fresh accounts getting activated in November. This is a substantial jump from July, when activation was only 18%. Activation refers to the trading activity after opening the demat account. A higher activation rate signifies that investors are not only opening demat accounts but also trading in an active manner. ICICI Direct hopes activation rate to be around 40% in December.
Reliance Money (R-Money), which boasts of 2.5-million account holders, has also been witnessing a rise in the number of accounts being opened after the government announced a fiscal stimulus package.
“New account opening is picking up gradually,” said R-Money CEO Sudip Bandyopadhyay. He added while earlier around three lakhs R-Money account holders were active traders, the number has now gone up to four lakhs.
According to Mr Bandyopadhyay, the increase in retail investor participation can be attributed to the recently announced stimulus package and rate cuts by the Reserve Bank of India (RBI). “Investor confidence is improving steadily; now that we’re moving away from economic deterrents like high inflationary pressures and high interest scenario, we expect the positive trend to continue for some time,” he said.
The Sensex has gained around 20% in the past one month, rising from 8,451 point to 10,100 points. The average number of shares being traded daily has also gone up by a little over 19% that clearly signals an increase in investor participation.
According to a Sharekhan spokesperson, the broking firm has registered a 20% rise in the number of active accounts in the past few days. “Fresh account opening is also gathering steam; we’re opening about 15,000 fresh accounts every month,” said the official.
Similarly, Angel Broking executive director (equities broking) Vinay Agrawal said: “While earlier “only 7% of investors took to daily activation, this has improved to 10% in the past few days.”
Corp governance rating to get a boost
Raters Hope More Companies Will Opt For
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Governance Ratings After Satyam Fiasco
Ashish Rukhaiyar
MUMBAI
Dec 19, 2008
CREDIT rating agencies have sensed a business opportunity, following the Satyam fiasco. Chances are they would get more clients for ‘corporate governance rating’ — a service that agencies had launched some years ago, but have so far interested only in a few companies.
ICRA launched its corporate governance rating (CGR) around five years ago, while Crisil came out with a similar product a little before that. Till date, however, only a handful of Indian companies have opted for corporate governance rating, which takes into account equitable treatment of shareholders, transparency & disclosure, composition & functioning of board, procedures laid down for making corporate decisions, among other factors.
Crisil senior director (ratings) Raman Oberoi said that while they have rated “quite a few” companies in the past, only “10 entities have made it public.” “Companies like Bharti Airtel, HDFC Bank, Infosys, Hero Honda and M&M are some of the companies that have got themselves rated and also come for annual review,” said Mr Oberoi.
While Crisil officials refused to divulge the costs involved in such ratings, Icra vicechairman & group CEO PK Choudhury said: “It is in the range of Rs 5 lakh to Rs 7.50 lakh,” depending on the “size and complexity”. Icra, incidentally, has rated 14 entities, including Andhra Bank, 3i Infotech, Infosys, Godrej Consumer Products and Punjab National Bank.
Rating agencies have tried their best to market the product by making presentations to various industry bodies and also to the regulatory authorities. “We have kept the regulators informed of what we do while organising seminars with Chambers of Commerce, etc, to create awareness for this range of services,” said Mr Choudhury.
Interestingly, even while rating agencies may advocate the importance of such ratings, there are many who feel that corporate governance is about ethics and cannot be forced by checkbox exercise. “Ethics cannot be graded and so should not be mandated by law,” said Prime Database managing director Prithvi Haldea.
“Next to every agenda item, board members should start the practice of writing its implications on the minority and majority shareholders. It would go a long way in enhancing corporate governance,” said Mr Haldea who feels that companies like Satyam would anyway get the highest rating if it opts for one.
TRIGGER POINT
* Only a few companies have opted for corporate governance so far
* While cos advocate for importance of ratings, many feel corp governance is about ethics and can’t be graded
* Rating cos try to market this product by making presentation to various industry bodies
Difficult to wriggle out of legal tangle
Shareholders Can Take Co To Court Even Now
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Jessica Mehroin Irani & Ashish Rukhaiyar
MUMBAI
Dec 18, 2008
SHAREHOLDERS of Satyam Computers can take legal action against the company even after Satyam backtracks from its plans to acquire Maytas Properties and Maytas Infrastructures, according to legal experts.
Anoop Narayanan, partner of Majmudar & Co, feels that the Satyam shareholders ‘paid a price’ for the board decision and this provides them sufficient ground for initiating legal action. “The unfavourable impact of the deal and the criminal act (criminal breach of trust) behind that may be sufficient grounds for legal action even after the deal has been called off,” says Mr Narayanan.
The Satyam stock lost more than 30%, or Rs 68.45, on Wednesday, to close at Rs 158.05 on the BSE. Mr Narayanan feels a “criminal action can also be taken for breach of trust.” Legal experts feel at least 100 shareholders, or shareholders with a combined 10% stake, can come together and file a case for breach of trust and mismanagement as it is clear that the company board did not act in the best interest of the shareholders. This is in accordance with Sections 397 and 398 of the Companies Act 1956.
It is also alleged that the deal was deliberately valued in a fashion to avoid obtaining shareholders’ approval. Edelweiss Securities, in a report released on Wednesday, says that the Section 372A of the Companies Act, 1956 empowers a board to make any investment without passing a special resolution by the shareholders if the value is either 60% of the aggregate of the paid-up capital and free reserves or 100% of its free reserve, whichever is more.
“Around 60% of the company’s paidup capital and free reserves stand at $1 billion while its free reserve is $1.64 billion, which is extremely close to the transaction consideration of $1.6 billion,” notes the report.
According to another partner of a corporate legal firm, who did not wish to be named, said that it is amply clear that the deal was designed to use the company’s fund to help a section of the promoters for their personal gains. “I would not be surprised if the stock exchanges at the behest of Sebi ask for an explanation from the promoters. In the US, promoters cannot get away easily after such acts,” he says.
Wary hedge funds hold on to cash in uncertain times
Hopes Of Market Revival May Be Belied As Traditional
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
Fresh Allocations In Jan May Not Come Through
Ashish Rukhaiyar
MUMBAI
Dec 12, 2008
VISHAL Mehta (name changed) does a lot of stock transactions for hedge funds based out of Singapore and Hong Kong. His job requires him to shuttle frequently between his Mumbai office and the twin Southeast Asian financial centres.
Earlier, every visit of his to Singi (the market lingo for Singapore) and HK would bring at least three or four orders that would help cover the cost of the trip apart from getting him an impressive incentive. Things, however, have now taken a u-turn, with Mr Mehta returning empty-handed from most of his recent trips overseas.
“I was surprised to see most of my regular clients sitting on cash and refusing to invest it,” says Mr Mehta while declining to name the “hedgees” due to confidentiality agreements. “Obviously, most of them have been hit by massive redemption pressures, but even those that have cash are not ready to deploy it. I even met a fund manager who had 90% cash on his books,” he adds. “I don’t think there would be any ‘January Effect’ this time.”
This spells bad news for those who were hoping for an early revival in the domestic stock market. While December is traditionally a lean period as many institutional investors sell shares to offset capital gains (thereby saving on tax), January is usually seen as a revival month as foreign investors start allocating money to specific markets. This is also sometimes referred to as the ‘January Effect’.
India Investment Advisors LLC co-founder and managing director Robin Rodriguez, who manages the India Deep Value Fund, feels, “Actions of a very large percentage of India-focused hedge funds are being driven by investor withdrawals as opposed to a conscious trading decisions”.
“The biggest selling bouts that occurred in my lifetime (1972-1974 and 1989-1991) didn’t really abate until new liquid players recognised the extent to which the decline had been overdone on the downside and started trying to exploit the opportunities,” he explains.
In a similar context, a managing director of an investment advisory firm says that there are hardly any funds with an appetite for Indian stocks. “Everyone knows that problems in the developed market are far from over. While most funds are sitting on at least 25% cash, none of them have the confidence to deploy that money in the current scenario.”
Interestingly, there are many on the street who feel that even if there are fresh allocations, India would not gain much since some of the other Asian markets, including China, appear much more attractive. The Shanghai Composite, China’s benchmark index, has lost over 60% in the current calendar year, much more than India’s Sensex, which is down by 52% during the same corresponding period.
Mr Rodriguez, however, finds it hard to conclude that China is cheaper than India given the opaque regulatory regime and a lack of accounting controls. “The inadequate accounting controls in most Chinese companies and the lack of a legal system that facilitates enforcement of contract rights implies (Chinese stocks) should be cheaper to account for the country risk.”
BSE cuts penalty on KGN Ind
Ashish Rukhaiyar
MUMBAI
Dec 03, 2008
THE Bombay Stock Exchange has revised its earlier order pertaining to KGN Industries, wherein it had penalised more than 200 brokers for their alleged role in manipulating the share price on the relisting day.
According to people familiar with the development, the exchange has more than halved the penalty amount for most broking houses that were named in the earlier order in June 2008. The development follows representations made by these brokers with some even knocking the doors of the Securities Appellate Tribunal (SAT).
The case goes back to June 2008 when BSE slapped a fine of up to Rs 5 lakh on 222 brokers for allegedly manipulating the stock price of KGN Industries on the day of its relisting on May 21. The stock opened at Rs 72 and went on to hit an incredible price of Rs 55,000 within two hours.
BSE suspended trading in the stock around 12.20 pm when it fell back to Rs 15,000. Later on that day, BSE issued a release saying: “Further investigations will be carried out, but trading in the stock will resume on Thursday at the adjusted price of Rs 5,216.30.”
The exchange, in its new order announced a few days ago, has tried to penalise only those entities that punched in orders but failed to take actual delivery of the stock. Brokers, however, are still unhappy as most of them did not get delivery due to genuine reasons and still have to pay penalty.
"Only 827 shares were traded on May 21 and so most brokers did not get delivery," said a compliance officer of a brokerage whose penalty was reduced to Rs 1.25 lakh from the earlier Rs 5 lakh. "So still many brokers who had no malicious intent have to pay penalty albeit of a lower value," he added.
Around 4-5 aggrieved brokerages, including Asit C Mehta, Networth Stock Broking and SBICAP Securities, had moved the Securities Appellate Tribunal (SAT), challenging the exchange’s order. SAT apparently asked BSE to explain the rationale of its order. Meanwhile, a mail sent to the exchange asking for details related to the revised order remained unanswered till the time of going to press.
BSE, in its earlier order, observed that some of the trading members entered orders at unrealistic prices, disturbing the market equilibrium. "In view of the same, it has been decided to impose a fine up to Rs 5 lakh on such trading members," said the exchange.
The trading members who were named in the order included Angel Broking, Brics Securities, Centrum, Dawnay Day, Emkay, Geojit, India Infoline, Religare, Sharekhan and Anand Rathi among others.
Brokers try alternate source of revenue
Ashish Rukhaiyar
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
MUMBAI
Nov 25, 2008
THE next time you get a call from a person selling insurance policies, don’t be surprised if he happens to be from a stock broking firm and not from any insurance company. The ongoing turbulence in the equity market has forced broking companies to look for alternate options to keep the cash registers ringing. While some broking outfits have started making calls to sell insurance policies, others are marketing housing and commercial projects of major real estate players.
Broking firms’ revenues have been under intense pressure since the market began sliding in January this year. Benchmark indices are down over 60% from their record highs while traded turnover too has shrunk by nearly 50%. This has forced broking firms to hedge their risks by searching for alternate revenue options.
Major players like India Infoline, Edelweiss, Motilal Oswal Securities and ICICI Securities are all looking at various alternatives to make some money even as the stock market shows no sign of an early recovery. Selling third party insurance products, fund management for PE entities and selling ad space on websites are some of the options that outfits are trying out.
India Infoline, for instance, earned more than Rs 20 crore in the quarter ended September 30 by selling space on its website. It accounted for around 7% of the total revenue of the broking house. Further, Rs 16 crore was added to its kitty by selling insurance products.
Edelweiss Capital CEO Rasesh Shah is of the view that a single activity should not contribute more than 35% of the total revenue. “The market is going through a cyclical phase and standalone outfits would find the going tough,” says Mr Shah. Approximately 70% of Edelweiss’ revenue is from nonbroking activities that have grown by approximately 5-10% quarter-on-quarter. “AMC, treasury operations, investment banking and interest income contribute to our non-broking fees,” he added.
Deutsche Bank, interestingly, in a report released in August this year, had said most outfits in India are heavily dependent on income related to capital markets. “Diversification into non-capital markets or relatively immune areas like life insurance distribution and consumer finance businesses could give some stability to the top line and improve the bottomline in the long run,” it said.
Meanwhile, clients of online broking major ICICI Direct have been receiving regular mailers offering discounts on various real estate projects. Recently, clients of ICICI Direct were offered a pre-launch discount on a Bangalore-based township project being developed by DLF. Earlier, the online broking firm has sent mailers on behalf of realtors like Indiabulls and Parshwanath.
Motilal Oswal Financial Services CMD Motilal Oswal has also seen a growth in the non-broking business in the last quarter. “Our nonbroking activities include wealth management & PE fund management, apart from investment banking,” said Mr Oswal. Collectively, these contribute to around 25-30% of our total revenues, he added.
Indians hope to bring change to Obama White House
Ashish Rukhaiyar
MUMBAI
Nov 15, 2008
THE history-making Obama campaign has captivated millions all over the world. Indians are clearly not immune to the charisma of the one-time Senator from Illinois. In a somewhat unexpected development, Indians in considerable numbers have been volunteering to serve in an Obama administration.
Mahesh Nair (name changed) was fired up when he heard Barack Obama say, “Change will not come if we wait for some other person or some other time.” He knew, at once, that Obama was the kind of person he wanted to work for. Mahesh is now one among many Indians who are ready to work for Obama and have submitted applications through his official website: change.gov.
US President-elect Obama launched the website immediately after winning the race and since then has seen its popularity surge with each passing day. And Indians are contributing to it in huge numbers. Outside the US, the website is registering the second-highest number of hits from India, with Germany occupying the top slot.
According to web information company Alexa, nearly 65% of the traffic on change.gov is from within the US. Germany accounts for 8% while India occupies the second slot with a share of more than 3%.
While the number may appear minuscule, it is important to note that India has managed to stay ahead of countries like the UK, Canada, Australia and China. “I think Obama has managed to do something that even Indian political leaders would have failed to do,” says Mr Nair who works with an online portal and has applied for a job in the FCC department that defines policies for technology, internet and wireless. “While many of my colleagues have applied for jobs, no one wants to disturb the bosses by talking about it openly,” he adds.
People wishing to work for the Obama-Biden administration have to send a request through the website after which a 14-page document is mailed to them. Applicants have to submit their personal details apart from information on prior media/public speaking/political experience, desired position in the administration and three references. Applicants can choose from a number of departments, including justice, transportation and veteran affairs. One can also include his preference for working in non-profit organisations.
Filling the 14-page form, however, is just the first stage of the whole process, as applicants who are considered for a specific position would have to fill out additional forms, including financial disclosures. Interestingly, such applicants could also be subject to FBI background checks.
While the applicant is asked if he is eligible to work in the US, it is still not clear how India-based applicants would be involved in the Obama-Biden team. “There is no mention of how people from other countries would be included in the administration team,” says Deepa who has expressed her desire either to work in the department of environment or education. “The acknowledgement mail only says that there has been thousands of applications. And initially, the focus would be on the senior-most positions in the administration,” she adds.
Interestingly, while the form does ask for the ‘race’ of the applicant, it explains that it does so only for the “purpose of collecting information for statistical records”. Moreover, it is not compulsory to provide this information.
In fact, the website clearly mentions that the “Obama-Biden Transition Project does not discriminate on the basis of race, colour, religion, sex, age, national origin, veteran status, sexual orientation, gender identity, disability, or any other basis of discrimination prohibited by law”. Meanwhile, Team Obama would be unveiled on January 20, 2009 when the Democrat senator from Illinois assumes office.
MUMBAI
Nov 15, 2008
THE history-making Obama campaign has captivated millions all over the world. Indians are clearly not immune to the charisma of the one-time Senator from Illinois. In a somewhat unexpected development, Indians in considerable numbers have been volunteering to serve in an Obama administration.
Mahesh Nair (name changed) was fired up when he heard Barack Obama say, “Change will not come if we wait for some other person or some other time.” He knew, at once, that Obama was the kind of person he wanted to work for. Mahesh is now one among many Indians who are ready to work for Obama and have submitted applications through his official website: change.gov.
US President-elect Obama launched the website immediately after winning the race and since then has seen its popularity surge with each passing day. And Indians are contributing to it in huge numbers. Outside the US, the website is registering the second-highest number of hits from India, with Germany occupying the top slot.
According to web information company Alexa, nearly 65% of the traffic on change.gov is from within the US. Germany accounts for 8% while India occupies the second slot with a share of more than 3%.
While the number may appear minuscule, it is important to note that India has managed to stay ahead of countries like the UK, Canada, Australia and China. “I think Obama has managed to do something that even Indian political leaders would have failed to do,” says Mr Nair who works with an online portal and has applied for a job in the FCC department that defines policies for technology, internet and wireless. “While many of my colleagues have applied for jobs, no one wants to disturb the bosses by talking about it openly,” he adds.
People wishing to work for the Obama-Biden administration have to send a request through the website after which a 14-page document is mailed to them. Applicants have to submit their personal details apart from information on prior media/public speaking/political experience, desired position in the administration and three references. Applicants can choose from a number of departments, including justice, transportation and veteran affairs. One can also include his preference for working in non-profit organisations.
Filling the 14-page form, however, is just the first stage of the whole process, as applicants who are considered for a specific position would have to fill out additional forms, including financial disclosures. Interestingly, such applicants could also be subject to FBI background checks.
While the applicant is asked if he is eligible to work in the US, it is still not clear how India-based applicants would be involved in the Obama-Biden team. “There is no mention of how people from other countries would be included in the administration team,” says Deepa who has expressed her desire either to work in the department of environment or education. “The acknowledgement mail only says that there has been thousands of applications. And initially, the focus would be on the senior-most positions in the administration,” she adds.
Interestingly, while the form does ask for the ‘race’ of the applicant, it explains that it does so only for the “purpose of collecting information for statistical records”. Moreover, it is not compulsory to provide this information.
In fact, the website clearly mentions that the “Obama-Biden Transition Project does not discriminate on the basis of race, colour, religion, sex, age, national origin, veteran status, sexual orientation, gender identity, disability, or any other basis of discrimination prohibited by law”. Meanwhile, Team Obama would be unveiled on January 20, 2009 when the Democrat senator from Illinois assumes office.
Promoters may rush to hike stake in holding cos
Attractive Valuations, Easier Norms For Accumulating Shares
Throws Open An Opportunity To Cash-Rich Promoters
Ashish Rukhaiyar
MUMBAI
Nov 04, 2008
IT MAY be a bit early to conclude on the impact of the market regulator’s recent move of allowing promoters to hike their stake up to 75% through the creeping acquisition route. But a section of market watchers are expecting an immediate fallout of the new rule.
They feel holding companies of various corporate houses, available at a steep discount to their net asset value, are likely to see a flurry of activity in the coming days. With share prices of these holding firms having been beaten down quite a bit, cash-rich promoters would find it cheaper to increase stakes in their companies through the holding companies’ route.
In an important amendment to the creeping acquisition rules last week, Sebi allowed promoters to increase their holdings in companies up to 75% through the creeping acquisition route provided that the acquisition is done through open market purchases and not through bulk/block deal or through preferential allotment. Earlier, this route was not available for promoters whose holding reached 55%. Creeping acquisition refers to the process wherein promoters can increase their stake each year by 5%.
Large corporate houses, including the Tatas, Birlas and Godrejs have listed holding companies that in turn hold sizeable stake in the various group companies. Holding companies typically are formed only for the purpose of owning shares of other group companies. As such, these entities are not involved in the actual production of goods or services.
“For cash-rich promoters, this is the ideal time to raise their stake in holding companies,” says Networth Stock Broking head of sales Deepak Mehta. “Firstly, prices are much below the fair value in lots of cases and secondly, the holding companies are quoting at a substantial discount. The only issue is how many promoters have that kind of cash,” he adds.
For instance, Tata Investment Corporation holds sizeable stake in Tata entities like Tata Chemicals, Tata Motors, Tata Power and Tata Steel. As per Monday’s closing price, the market capitalisation of Tata Investment stood at Rs 967 crore. Meanwhile, the value of its total investments in Tata group companies is estimated to be around Rs 1,200 crore.
According to KRIS director Arun Kejriwal, the regulator’s move has given promoters “an excellent opportunity” to up their stake in holding companies that “typically trade at a discount to their net asset values”. The value of these entities do not appreciate much and the management gains only by way of dividends, he adds. “There is a lot of logic in this approach,” feels Mr Kejriwal.
Meanwhile, Mcdowell Holdings has a stake in companies like United Breweries and UB Engineering. While the M-cap of Mcdowell Holdings is less than Rs 66 crore, its investment in UB group companies is pegged around Rs 165 crore. Bajaj Holdings is the holding company of Bajaj group and has a market capitalisation of around Rs 3,445 crore. The value of its investment, however, in Bajaj entities is much higher than its own M-cap.
BUSY STREET
* Holding cos typically trade at a discount to their net asset value
* Creeping acquisition norms’ amendment likely to induce promoters to increase stake in holding cos
* Beaten down share prices could act as an added incentive for promoters, say market players
* It would also help promoters thwart takeover threats in future
Throws Open An Opportunity To Cash-Rich Promoters
Ashish Rukhaiyar
MUMBAI
Nov 04, 2008
IT MAY be a bit early to conclude on the impact of the market regulator’s recent move of allowing promoters to hike their stake up to 75% through the creeping acquisition route. But a section of market watchers are expecting an immediate fallout of the new rule.
They feel holding companies of various corporate houses, available at a steep discount to their net asset value, are likely to see a flurry of activity in the coming days. With share prices of these holding firms having been beaten down quite a bit, cash-rich promoters would find it cheaper to increase stakes in their companies through the holding companies’ route.
In an important amendment to the creeping acquisition rules last week, Sebi allowed promoters to increase their holdings in companies up to 75% through the creeping acquisition route provided that the acquisition is done through open market purchases and not through bulk/block deal or through preferential allotment. Earlier, this route was not available for promoters whose holding reached 55%. Creeping acquisition refers to the process wherein promoters can increase their stake each year by 5%.
Large corporate houses, including the Tatas, Birlas and Godrejs have listed holding companies that in turn hold sizeable stake in the various group companies. Holding companies typically are formed only for the purpose of owning shares of other group companies. As such, these entities are not involved in the actual production of goods or services.
“For cash-rich promoters, this is the ideal time to raise their stake in holding companies,” says Networth Stock Broking head of sales Deepak Mehta. “Firstly, prices are much below the fair value in lots of cases and secondly, the holding companies are quoting at a substantial discount. The only issue is how many promoters have that kind of cash,” he adds.
For instance, Tata Investment Corporation holds sizeable stake in Tata entities like Tata Chemicals, Tata Motors, Tata Power and Tata Steel. As per Monday’s closing price, the market capitalisation of Tata Investment stood at Rs 967 crore. Meanwhile, the value of its total investments in Tata group companies is estimated to be around Rs 1,200 crore.
According to KRIS director Arun Kejriwal, the regulator’s move has given promoters “an excellent opportunity” to up their stake in holding companies that “typically trade at a discount to their net asset values”. The value of these entities do not appreciate much and the management gains only by way of dividends, he adds. “There is a lot of logic in this approach,” feels Mr Kejriwal.
Meanwhile, Mcdowell Holdings has a stake in companies like United Breweries and UB Engineering. While the M-cap of Mcdowell Holdings is less than Rs 66 crore, its investment in UB group companies is pegged around Rs 165 crore. Bajaj Holdings is the holding company of Bajaj group and has a market capitalisation of around Rs 3,445 crore. The value of its investment, however, in Bajaj entities is much higher than its own M-cap.
BUSY STREET
* Holding cos typically trade at a discount to their net asset value
* Creeping acquisition norms’ amendment likely to induce promoters to increase stake in holding cos
* Beaten down share prices could act as an added incentive for promoters, say market players
* It would also help promoters thwart takeover threats in future
Realtors talk hybrid deals with PEs
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 31, 2008
SOME real estate companies are trying to cut hybrid capital deals with private equity players, though the industry and deal makers are keeping their fingers crossed, given the turmoil in financial markets. Drying credit lines, non-availability of low-cost working capital and continuing downturn in equities have pushed cash-strapped promoters to work on new mezzanine structures with PE firms.
Mezzanine finance is a structured debt-like instrument consisting of cash income and an equitylinked component. It is sandwiched between debt and equity on a company’s balance sheet. Under mezzanine financing, the strategic investor (generally a private equity firm) funds a company through debt and equity.
According to private equity fund managers, the net cost of investments is 20-25%. Of this, 15-20% is paid as interest on debt and the remaining 5-10% is offered to the private equity investor as warrants exercisable at close of debt maturity at zero cost. The equity portion is valued on the basis of the company’s outlook, experts said.
“The current economic conditions are forcing companies to opt for quasi debt/quasi equity kind of financing. Several real estate companies are looking at this option to raise funds. A few are already negotiating with strategic investors,” said Noble Group’s Indian equities head Saurabh Mukherjea.
Mezzanine capital is typically used to finance acquisitions, product enhancement and plant expansion. Although it constitutes a small percentage of a company’s total available capital, mezzanine financing has become important for middle-market companies in recent months.
Some mezzanine deals already done
“TO MY knowledge, there has been no mezzanine financing deal in India lately. The segment is in a pause mode as of now. But I am sure that promoters are considering such fund-raising options,” said ICICI Ventures MD Renuka Ramanathan. ICICI Venture is in the process of closing the country’s first mezzanine fund. ICICI Venture’s ‘India Advantage Fund VII’ will offer $110 million in its first round of fund raising.
Mr Mukherjea said, “Private equity investors are not willing to finance companies without equity participation. Mezzanine financing offers promoters the flexibility to meet fund requirements without a significant dilution in ownership. Deal sizes should range between $15 million and $200 million in India.” The fees for raising money is about 1-2%of the transaction amount.
Mezzanine financing is a funding strategy that blooms when other forms of capital raising become unviable and impossible. Collaterised debt, zero-cost conversion of warrants and low investment tenures make mezzanine funding beneficial for the investor.
If analysts are to be believed, a few deals structured on the lines of mezzanine financing have already taken place over the past eight months. “These deals are not made public as they involve several regulatory bottlenecks,” an analyst said.
MUMBAI
Oct 31, 2008
SOME real estate companies are trying to cut hybrid capital deals with private equity players, though the industry and deal makers are keeping their fingers crossed, given the turmoil in financial markets. Drying credit lines, non-availability of low-cost working capital and continuing downturn in equities have pushed cash-strapped promoters to work on new mezzanine structures with PE firms.
Mezzanine finance is a structured debt-like instrument consisting of cash income and an equitylinked component. It is sandwiched between debt and equity on a company’s balance sheet. Under mezzanine financing, the strategic investor (generally a private equity firm) funds a company through debt and equity.
According to private equity fund managers, the net cost of investments is 20-25%. Of this, 15-20% is paid as interest on debt and the remaining 5-10% is offered to the private equity investor as warrants exercisable at close of debt maturity at zero cost. The equity portion is valued on the basis of the company’s outlook, experts said.
“The current economic conditions are forcing companies to opt for quasi debt/quasi equity kind of financing. Several real estate companies are looking at this option to raise funds. A few are already negotiating with strategic investors,” said Noble Group’s Indian equities head Saurabh Mukherjea.
Mezzanine capital is typically used to finance acquisitions, product enhancement and plant expansion. Although it constitutes a small percentage of a company’s total available capital, mezzanine financing has become important for middle-market companies in recent months.
Some mezzanine deals already done
“TO MY knowledge, there has been no mezzanine financing deal in India lately. The segment is in a pause mode as of now. But I am sure that promoters are considering such fund-raising options,” said ICICI Ventures MD Renuka Ramanathan. ICICI Venture is in the process of closing the country’s first mezzanine fund. ICICI Venture’s ‘India Advantage Fund VII’ will offer $110 million in its first round of fund raising.
Mr Mukherjea said, “Private equity investors are not willing to finance companies without equity participation. Mezzanine financing offers promoters the flexibility to meet fund requirements without a significant dilution in ownership. Deal sizes should range between $15 million and $200 million in India.” The fees for raising money is about 1-2%of the transaction amount.
Mezzanine financing is a funding strategy that blooms when other forms of capital raising become unviable and impossible. Collaterised debt, zero-cost conversion of warrants and low investment tenures make mezzanine funding beneficial for the investor.
If analysts are to be believed, a few deals structured on the lines of mezzanine financing have already taken place over the past eight months. “These deals are not made public as they involve several regulatory bottlenecks,” an analyst said.
NSE pips peers in currency futures membership race
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
Oct 29, 2008
THE National Stock Exchange (NSE) has pipped rival stock exchanges in terms of attracting the largest number of members in the recently-launched currency futures segment. The country’s largest stock exchange, which was also the first to launch currency derivatives, has raced ahead of its two rivals — the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange of India (MCX). NSE has also been registering impressive volumes in this segment, with more than one lakh contracts being traded in a single trading session.
According to data released by the Securities and Exchange Board of India (Sebi), 1,030 entities have registered either as trading members or clearing members to participate in the nascent currency derivative market in the country. Of this, NSE has managed to attract 470 entities or close to 46% of the total number of members.
MCX is next with 403 members, being the second exchange to launch currency derivatives trading on October 6 after NSE launched it on August 29. BSE has been able to attract only 157 members so far for its currency segment that was launched on October 1.
Currency futures are contracts that investors enter into to hedge against foreign exchange risk. Currency futures can also be used by speculators attempting to profit from rising or falling exchange rates. Globally, currency market is much bigger than the stock market.
According to reports, London witnesses a daily turnover of $1 trillion in currency futures. In New York, it is said to be in the range of $400-500 billion daily. In Asia, close to $300 billion worth of currency futures is traded daily in Tokyo, with Singapore also reporting huge volumes.
“Amongst the hedgers, arbitragers and speculators who are active in any futures market, volumes in the Indian currency futures market are currently dominated by bankers who are mainly into arbitraging,” says S Ramesh Kumar, senior vice-president at Mumbai-based Asit C Mehta Investment Intermediates.
His broking house has a licence to trade on the currency terminal of NSE. Arbitragers participate in intramarket, intermarket and interexchange (between NSE, BSE, MCX) arbitrage. Hedgers and speculators will be the next wave of traders who will take to the exchange traded markets, he feels. “People involved in commodities trade will feel the need for hedging their currency risks, and they will head to the currency futures terminal,” Mr Kumar says.
This month, on most days, more than one lakh contracts were traded on NSE each day. On October 22, incidentally, more than two lakh contracts were traded in one single session. The average daily turnover in the currency derivatives segment of NSE has been in excess of Rs 600 crore. Meanwhile, on MCX, nearly 60,000 contracts were traded on Monday, October 27. The value of the contracts was close to Rs 300 crore.
A CEO of a domestic brokerage that has memberships of all the three exchanges says, “Only select high net worth individuals and banks are participating in the exchange traded currency derivatives market.”
He adds that most of the small and medium enterprises (SMEs) for whom the segment was launched, are used to much longer contracts than those available on the exchanges. For years, due to unavailability of exchange-traded futures, these SMEs have getting into long-term contracts with banks for hedging their currency exposures.
MUMBAI
Oct 29, 2008
THE National Stock Exchange (NSE) has pipped rival stock exchanges in terms of attracting the largest number of members in the recently-launched currency futures segment. The country’s largest stock exchange, which was also the first to launch currency derivatives, has raced ahead of its two rivals — the Bombay Stock Exchange (BSE) and the Multi Commodity Exchange of India (MCX). NSE has also been registering impressive volumes in this segment, with more than one lakh contracts being traded in a single trading session.
According to data released by the Securities and Exchange Board of India (Sebi), 1,030 entities have registered either as trading members or clearing members to participate in the nascent currency derivative market in the country. Of this, NSE has managed to attract 470 entities or close to 46% of the total number of members.
MCX is next with 403 members, being the second exchange to launch currency derivatives trading on October 6 after NSE launched it on August 29. BSE has been able to attract only 157 members so far for its currency segment that was launched on October 1.
Currency futures are contracts that investors enter into to hedge against foreign exchange risk. Currency futures can also be used by speculators attempting to profit from rising or falling exchange rates. Globally, currency market is much bigger than the stock market.
According to reports, London witnesses a daily turnover of $1 trillion in currency futures. In New York, it is said to be in the range of $400-500 billion daily. In Asia, close to $300 billion worth of currency futures is traded daily in Tokyo, with Singapore also reporting huge volumes.
“Amongst the hedgers, arbitragers and speculators who are active in any futures market, volumes in the Indian currency futures market are currently dominated by bankers who are mainly into arbitraging,” says S Ramesh Kumar, senior vice-president at Mumbai-based Asit C Mehta Investment Intermediates.
His broking house has a licence to trade on the currency terminal of NSE. Arbitragers participate in intramarket, intermarket and interexchange (between NSE, BSE, MCX) arbitrage. Hedgers and speculators will be the next wave of traders who will take to the exchange traded markets, he feels. “People involved in commodities trade will feel the need for hedging their currency risks, and they will head to the currency futures terminal,” Mr Kumar says.
This month, on most days, more than one lakh contracts were traded on NSE each day. On October 22, incidentally, more than two lakh contracts were traded in one single session. The average daily turnover in the currency derivatives segment of NSE has been in excess of Rs 600 crore. Meanwhile, on MCX, nearly 60,000 contracts were traded on Monday, October 27. The value of the contracts was close to Rs 300 crore.
A CEO of a domestic brokerage that has memberships of all the three exchanges says, “Only select high net worth individuals and banks are participating in the exchange traded currency derivatives market.”
He adds that most of the small and medium enterprises (SMEs) for whom the segment was launched, are used to much longer contracts than those available on the exchanges. For years, due to unavailability of exchange-traded futures, these SMEs have getting into long-term contracts with banks for hedging their currency exposures.
Foreign institutions may get to buy stake in exchanges ahead of listing
Govt Likely To Let Overseas Funds Purchase
Shares From Primary Shareholders
Shaji Vikraman & Ashish Rukhaiyar
MUMBAI
Oct 23, 2008
THE government is considering a proposal to allow foreign portfolio investors to buy into the equity of stock exchanges. The proposal now being vetted envisages foreign portfolio investors, or FIIs, being allowed to buy a stake in any of the stock exchanges from one of the existing shareholders through a secondary market transaction.
Earlier, at the time of framing the rules for foreign investment, the government and financial regulators had said an FII could pick up stakes in stock exchanges only through secondary market purchases. This was interpreted as permission to buy shares only after the listing of bourses. However, a sale by a primary shareholder to another investor could be construed as a secondary market purchase and not just listing and therefore, the government is set to allow such transactions, said a person familiar with the issue.
India allows foreign investment up to 49% in stock exchanges, depositories and clearing corporations with foreign direct investment of 26% and 23% in the form of foreign portfolio investment. After the rules were notified, many stakeholders made out a case to the government to revise it, saying investors needed more flexibility and comfort.
People familiar with the development say representatives of various stakeholders met with regulatory authorities, seeking more clarity on the issue. Apart from foreign stock exchanges, promoters and top officials of industrial houses, such as Bajaj and Aditya Birla have bought stakes in their personal capacity in the two Indian premier stock exchanges — NSE and BSE.
The proposed move to allow secondary market purchases by FIIs could provide stakeholders an exit option. “This is one of the core issues, especially for foreign shareholders,” says Majmudar & Co managing partner Akil Hirani. “The understanding that we had was that existing shareholders can sell their shares only in the secondary market. And with listing of Indian exchanges nowhere in sight, it was proving to be a major impediment,” he said.
Singapore Exchange (SGX), Deustche Borse and New York Stock Exchange (NYSE) are the three foreign stock exchanges, which hold equity stakes in Indian bourses. Morgan Stanley, Goldman Sachs, Merrill Lynch and Actis are some of the other global majors who bought shares of Indian stock exchanges in 2006.
For many, this was one of the two core issues that was acting as a roadblock in enhancing valuations of Indian bourses. Sebi has already addressed the other issue of a maximum limit for certain categories of shareholders. The limit has been hiked, including for foreign exchanges from the earlier 5% to 15%.
Shares From Primary Shareholders
Shaji Vikraman & Ashish Rukhaiyar
MUMBAI
Oct 23, 2008
THE government is considering a proposal to allow foreign portfolio investors to buy into the equity of stock exchanges. The proposal now being vetted envisages foreign portfolio investors, or FIIs, being allowed to buy a stake in any of the stock exchanges from one of the existing shareholders through a secondary market transaction.
Earlier, at the time of framing the rules for foreign investment, the government and financial regulators had said an FII could pick up stakes in stock exchanges only through secondary market purchases. This was interpreted as permission to buy shares only after the listing of bourses. However, a sale by a primary shareholder to another investor could be construed as a secondary market purchase and not just listing and therefore, the government is set to allow such transactions, said a person familiar with the issue.
India allows foreign investment up to 49% in stock exchanges, depositories and clearing corporations with foreign direct investment of 26% and 23% in the form of foreign portfolio investment. After the rules were notified, many stakeholders made out a case to the government to revise it, saying investors needed more flexibility and comfort.
People familiar with the development say representatives of various stakeholders met with regulatory authorities, seeking more clarity on the issue. Apart from foreign stock exchanges, promoters and top officials of industrial houses, such as Bajaj and Aditya Birla have bought stakes in their personal capacity in the two Indian premier stock exchanges — NSE and BSE.
The proposed move to allow secondary market purchases by FIIs could provide stakeholders an exit option. “This is one of the core issues, especially for foreign shareholders,” says Majmudar & Co managing partner Akil Hirani. “The understanding that we had was that existing shareholders can sell their shares only in the secondary market. And with listing of Indian exchanges nowhere in sight, it was proving to be a major impediment,” he said.
Singapore Exchange (SGX), Deustche Borse and New York Stock Exchange (NYSE) are the three foreign stock exchanges, which hold equity stakes in Indian bourses. Morgan Stanley, Goldman Sachs, Merrill Lynch and Actis are some of the other global majors who bought shares of Indian stock exchanges in 2006.
For many, this was one of the two core issues that was acting as a roadblock in enhancing valuations of Indian bourses. Sebi has already addressed the other issue of a maximum limit for certain categories of shareholders. The limit has been hiked, including for foreign exchanges from the earlier 5% to 15%.
Queue gets longer for currency futures play
Seven Banks Ally With Chicago Mercantile To Float An Exchange
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Reena Zachariah & Ashish Rukhaiyar
MUMBAI
Oct 22, 2008
THE slow and steady rise in the volume of currency derivatives trading in India seems to be attracting more players into this segment. Seven Indian banks have joined hands with the Chicago Mercantile Exchange (CME), the world’s largest diversified financial derivatives exchange, to form a consortium for launching the fourth Indian exchange offering a platform for currency futures.
The clutch of banks including Federal Bank, Canara Bank, Bank of India, Bank of Baroda, Oriental Bank of Commerce, Indian Bank and Andhra Bank have floated a company called the United Stock Exchange that has applied for a licence with the capital market regulator. Banking sources said the group was in talks with more banks to subscribe to the capital of the company.
“We have already met with Sebi officials and the process is on track. We are also in talks with more stateowned and private banks, asking them to join our group,” said a senior banker, who is also a part of the consortium.
A currency future is a derivative contract to exchange one currency for another at a specified date in future. The price at which the transaction is to be settled is the exchange rate prevailing on the last trading date. Typically, one of the currencies involved in the transaction is the US dollar. In India, however, it has so far been an over-the-counter (OTC) market with banks offering these derivative products to companies. The increasing interest by several players to offer exchange-traded currency futures underscores the huge potential in the segment.
Interestingly, the Bangalore Stock Exchange, also wants to be allowed to trade currency futures, according to people familiar with the development. The regional stock exchange, which sees very low volumes of trading, has also initiated talks with banks with this regard.
Banks are the major players in the currency futures market and so most groups are trying to woo them. A senior official of the Bangalore Stock Exchange confirmed the development while refusing to share further details. Representatives of both the consortia have already met with Sebi officials.
Sebi officials confirmed that representatives of the two consortia have met them and approval would be given if they fulfil the eligibility criteria. Sebi has been articulate about the fact that they would encourage more competition, and would approve any entity that would approach them, if they fulfil the stated criteria.
The RBI-Sebi joint committee that was formed to frame guidelines for currency derivatives laid down two key criteria for exchanges willing to launch currency futures — a nationwide presence and a balance sheet networth of at least Rs 100 crore. The guidelines also require entities to have robust surveillance systems to monitor positions, prices and volumes on a real time basis.
Currently, the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and MCX are the three entities that offer a platform to trade currency derivatives. NSE was the first Indian exchange to offer this platform, doing so in August. According to industry players, Ahmedabad-based National Multi Commodity Exchange (NMCE) is also planning to launch the currency futures segment.
Keep off from cos where promoters have pledged their shares
Ashish Rukhaiyar
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
MUMBAI
Oct 18, 2008
DEALERS staring at their trading screens on last Friday were baffled. They did not know what hit them. Benchmark indices were down over 1000 points and most stocks shed 10-15%. One particular stock, however, caught everyone’s attention.
Core Projects opened with a huge negative gap, in line with the indices. And within a few hours, the stock saw more than half of its value being eroded. Dealers were seen making frantic calls to ascertain the reason behind the massive and sudden fall. As the session progressed, various theories were attributed to the bruising decline.
According to the market talk, the promoters of Core Projects had pledged a large number of shares with some non-banking financial companies (NBFCs). As the market nosedived, the share rice of Core Projects plummeted, bringing down the value of the collateral.
In a scenario where the promoters are unable to garner additional funds, NBFCs start selling the pledged shares to recover money. This, say marketmen, starts a chain reaction, and therefore, it is best for investors to stay away from companies whose promoters are known to have pledged their shares.
The promoters of several companies pledged their shares with various NBFCs to avail of working capital. The issue of Core Projects was not a standalone case, according to marketmen. Parsvnath Developers, Shree Ashtavinayak Cine Vision, Goldstone Technologies, KS Oils, Pyramid Saimira, Sterling Biotech and Akruti City are some names that are doing the rounds in the market. These shares carry a higher risk as a major fall in their prices could trigger a selling-spree by NBFCs.
Barring Parsvnath Developers, an email sent to the other companies remained unanswered. Parsvnath Developers assistant vice president (finance) Ashok Dang, in an email reply, said, “Our promoter, Pradeep Jain had taken a loan of Rs 115 crore from a bank and NBFCs by pledging shares. The loan has been repaid to the extent of Rs 44 crore and the outstanding is now only Rs 71 crore”.
The promoters of not only midand small-cap companies, but also some large-cap companies, have been pledging shares to raise funds, say brokers. “If any share outperforms the broader market (without any fundamental support) during a bull run or underperforms when the market falls, there are chances that the promoters have pledged shares and have reasons to maintain an artificial price level,” says the head of a NBFC.
The stock, incidentally, touched a 52-week high in July, when the Sensex was down nearly 40% from its peak. Sterling Biotech gained marginal ground in the first 10 months of this calendar year. However, some real estate entities have lost considerable ground during the ongoing downturn.
The shareholding pattern of Secunderabad-based Goldstone Technologies clearly reveals that many brokerages hold shares of the company in their margin accounts. India Infoline, Sharekhan, Religare Securities, Standard Chartered Bank, IL&FS Investment Securities and Aryan Share & Stock Brokers account for more than 1% of the company’s equity.
IBM initiative helps small cos make it big in emerging markets
Ashish Rukhaiyar
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
DANANG, VIETNAM
Oct 15, 2008
MAI Vsan Quang started his shipping company — Asiatrans Vietnam — in 2003, a firm which is into handling logistics and port operations for many foreign and domestic shipping majors. Mr Quang, however, had a problem. His firm was just one of the many small and medium enterprises (SMEs) operating in Danang. He wanted to bring his company on the national map and needed guidance for it.
Help, luckily, was not far away. His firm’s membership with Vietnam Chamber of Commerce and Industry (VCCI) proved helpful. VCCI is the local partner of global technology major IBM that is working with various SMEs in Vietnam, giving them recommendations on efficient use of resources. “Through VCCI I got in touch with Pradeep Setlur of IBM who worked with my staff for four weeks and suggested some important changes,” said Mr Quang.
Mr Setlur is one of the many IBM volunteers who are part of the Corporate Services Corp (CSC) initiative of IBM. These volunteers are full-time IBM employees and are selected through an in-house screening process. Once trained, they are sent to different countries, mostly emerging markets, to work with local companies.
“CSC is IBM’s response to globalisation,” said IBM’s senior program manager (corporate citizenship) Kevin Thomson. With this program, IBM helps in creating leaders, he added. CSC volunteers are currently working in many emerging countries including Ghana and Philippines.
IBM, said Mr Thomson, has a very competitive online application procedure with baseline eligibility conditions. “Only the top-25% employees are eligible to apply,” he said. There were around 55,000 applications for 100 volunteer positions. While the first batch has already started work, the next batch would be out in 2009. Over the next three years, IBM intends to send 600 professionals to emerging countries.
But, how does IBM identify companies that need training? The US-based major has tied up with three global NGOs that have, in turn, joined hands with local industry bodies. These associations help IBM in zeroing in on the companies that require assistance.
In Vietnam, for instance, IBM’s global NGO partner is Australia Business Volunteers (ABV) that has tied up with VCCI which has many local SMEs as its members. Apart from Asiatrans Vietnam, mid-sized entities like Danang Software Industrial Joint Stock Company and Hai Van Company are also benefiting from CSC.
Slump-hit arbitrageurs out of job
Ashish Rukhaiyar & Shailesh Menon
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
MUMBAI
Oct 09, 2008
IN WHAT may be the first signs of capital market intermediaries being forced out of business, many arbitrageurs and jobbers have either shut shop or moved on to other business segments. Some of the erstwhile 'market makers' are now trying out proprietary — trading on behalf of the firm — and client trading — punching orders on the screen for clients — to tide over the bear market. Market players said volatile market conditions and the adverse change in the securities transaction tax (STT) structure are largely to blame for this trend.
Arbitrage business typically involves near-simultaneous purchase and sale of a stock in order to profit from a difference in the price. An arbitrageur tries to spot price differences in case of stocks listed on more than one exchange. In a recent instance, Four Dimension Securities merged with Antique Stock Broking, with the merged entity now focusing on institutional broking. Four Dimension was known for its arbitrage business although it had a presence in other business segments, too.
Market participants added that the recent past has also been witness to many instances of small- and mid-sized arbitrageurs in Mumbai and Delhi shutting shop. “Jobbing and arbitraging have been wiped out of Indian market. More than market conditions, it is the additional levy (STT) that has massacred market makers,” said BR Bagri, chairman, BLB.
“The government introduced STT when the market was trading at 21,000; though equities have fallen nearly 50% from record levels, the government has done nothing to reduce transaction cost. Almost every government in Europe has reduced stamp duty — a levy similar to STT in India — payable by market makers in the respective exchanges. The lethargy on the part of authorities has resulted in several jobbing and arbitraging firms downing their shutters permanently.”
The continuous downtrend in markets has also resulted in day traders keeping away from the market. In a falling market, jobbers have to pick stocks that have upward momentum to eke small gains. Jobbers engaged in 'upla' — that is, to buy at market close and sell when the market opens the next day — have almost been wiped out, brokers said. Small-time jobbers will not trade in prevailing market conditions as they will have to maintain very high margins (30-50%) with brokers.
“Arbitrageurs bet on the direction of the market, which has become almost impossible now,” said Networth Stock Broking vice-president (sales) Deepak Mehta. “Add to it the tax issue and illiquidity, and there is hardly anything left for these entities.”
According to Mr Mehta, there are many small- and mid-sized arbitrageurs that are facing an uphill task for keeping their business running. In times of bull run — before the introduction of STT — jobbers and arbitrageurs accounted for about 45% of total trading turnover everyday. Trading volumes handled by a jobber in a single day would easily run into crores in good market condition. The margin they earned from 'buying low and selling high' would have been anywhere between Rs 2,000 and Rs 1,00,000 on an extraordinarily good day.
In the current market, the contribution of day traders would be around 15% of the total market turnover, experts said. Brokers are also finding it difficult to get day traders on profitsharing basis, they added.
“Day traders have almost become non-existent; the dip in stock future volumes says it all. A good 50% of my jobbers have not made money over the past few months,” said Crosseas Capital Services director Rajesh Baheti. "The introduction of STT is the prime reason for falling volumes in equities market. No other government in the world has imposed transaction tax on future market. In overseas bourses, market makers are given special privileges in terms of taxations with a view to boosting liquidity. India is going in the reverse direction.”
Finance minister P Chidambaram, in the Union Budget 2008-09, made an important change in the way securities transaction tax (STT) was to be treated for tax purposes, which, according to market players, impacted the business of day traders who generally operate on wafer-thin margins. According to the budget proposal, STT was to be treated as a deductible expenditure.
As per the earlier practice, STT was added to the total income and subsequently the payable tax was worked out. Under Section 88E, entities were entitled to a tax rebate and needed to pay only the surplus tax over STT at the end of the year. This benefit, however, of setting off income tax against STT is no longer available.
Investors could miss ASBA edge in Tata rights
Ashish Rukhaiyar & Gaurav Pai
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
MUMBAI
Oct 03, 2008
SEBI has extended ASBA — Application Supported by Blocked Amount — to rights issues with Tata Motors being the first company to incorporate the recently-introduced facility in its offering. Investors who apply for shares in this issue through ASBA, however, could see the money leaving their account much before allotment, which is contrary to the market regulator’s motive of introducing ASBA in the initial public offerings.
Such a scenario would arise as the rights issue guidelines clearly say the issuer can have immediate access to money if the issue has been subscribed at least 90%. And so the money would be debited from the investor’s account much before the allotment is made. The market regulator, incidentally, has extended ASBA facility to all categories of investors —institutional and retail — and so the number of applicants using this facility is expected to be high.
ASBA is part of the market regulator’s reform process for the primary market and co-exists with the current practice of IPO subscription with cheques. Earlier, the facility was available only for retail investors bidding at the cut-off price. Investors have to submit ASBA physically or electronically to the bank where his account is maintained. Banks, thereafter, block the application money till the basis of allotment is finalised or till withdrawal or rejection of the application, as the case may be.
ASBA also does away with the physical refund process, apart from reducing the time between an issue and its listing, since listing happens only after refunds are done. Market participants say the regulator could well have done some more groundwork before introducing ASBA to rights issue and also before extending it to all categories of investors.
“The Sebi circular does say the issuer can have immediate access to funds but there still exists a lot of confusion,” said a person familiar with the development. There are not many investors who are actually aware of this fact, he added. It is believed that various concerned entities, including registrars and investment bankers, met with Sebi officials to deliberate on this issue.
A Sebi official who wished not to be named said extending ASBA to the rights issue was the next logical step as the IPO market has dried up. “In case of Tata Motors, the money would be debited to the issuer’s account if the issue has been subscribed more than 90%. Excess, if any, would be credited back to the investor’s account after the allotment has been finalised,” he added. It is believed that the rights issue and ASBA guidelines would be amended in the near future to remove all such grey areas.
In effect, the real advantage of ASBA in the rights issue would be limited to the refund process, wherein money would directly be credited into the investor’s account instead of physical cheques being sent to the mailing address. “In case of refunds, shareholders who opted for ASBA can get the money electronically,” said a registrar.
An investment banker associated with the deal said: “irrespective of whatever application comes through ASBA or otherwise, once 90% of the amount comes in, registrars would tell the self-certified syndicate banks (those which offer the ASBA facility) to transfer money out of the investor’s account.” He further added that if the money goes beyond full amount then it would be moved to a public issue account and proportionate allotment would be done later.
Bankers, brokers squabble over fee
Bankers Claim: We Process ASBA Application;
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
Brokers Counter: But We Do The Marketing
Shailesh Menon & Ashish Rukhaiyar
MUMBAI
Oct 01, 2008
THE introduction of ASBA (Application Supported by Blocked Amount) has sparked off a tussle for commissions between broking firms and banks. While banks feel they have the right to pocket commission as they process applications and get subscriptions, brokers say they are equally deserving of the commission as they are instrumental in marketing the issue and getting clients to apply through ASBA.
The opening salvo has been fired by a large self-certified syndicate bank (SCSB), which recorded the most number of ASBA applications in the public issue of 20 Microns. According to market sources, the bank is considering approaching Sebi to claim commission (brokerage, in distributor parlance) for collecting investor applications and data processing.
“The bank is staking claims to around 1% (of total money procured or total amount allotted) as commission while handling public issues,” said a source in merchant banking circles. The public issue of 20 Microns was the first IPO to hit the market with ASBA facility for retail investors.
According to a Sebi release, ASBA accounted for nearly 10% (2,426 out of 25,003 applications) of the total retail applications. People familiar with the development, however, say the issue had its share of confusions with separate forms being printed for applicants wishing to use ASBA facility.
A broker, who did not wish to be named, said banks were even against having the column ‘broker’s/agent’s stamp & code’ in ASBA forms. “Banks say they are the ones who get the applicants and the money, and so there need not be any column for brokers,” said a broker who was involved in the marketing of the issue. “Banks do not go out and market the issue. That’s not their core business activity,” he added.
In case of 20 Microns, incidentally, separate forms were printed for investors wishing to use the new facility as the decision to incorporate ASBA was taken after the bidding forms were published. The forthcoming issues would, in all probability, be having single forms for all applicants. It is believed that SCCBs and investment banks met with officials of Sebi to discuss this issue, but the meeting ended without any concrete decision.
In contrast to the times before ASBA, self-certified syndicate banks (SCSBs) are required to collect ASBA application forms, block, unblock and unlock investor money and data processing. Data processing (or entry of investor data) was earlier done by registrars to the issue. As per ASBA rules, apart from handling share allotment, registrars are only required to fillup certain fields in the application form, check DP code and mark allotment money and the sum to be returned to the investor.
“The costs incurred by both brokers and banks will have to be split into two. Brokers should get a larger portion as they incur huge marketing costs while selling public issues. Banks should also be duly compensated for infrastructure costs incurred by them,” said a merchant banker attached to a private bank.
Broking commission for handling public issues generally range between 0.5% and 1.5%. But merchant bankers are of the opinion that banks — even if they get into marketing public issues — will not be able to bring institutional buyers and high networth clients, as most of them are advised by stock broking houses.
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