| . | The period ending June 30 was a
relatively uneventful week when the Sensex settled down at 4749 showing
no change over the fortnight. The advancing monsoon was however good news
that turned the attention of some of the investors towards old economy
stocks. While scouting for some opportunities in these sectors two
disturbing events of recent happening came to light where it appeared
that small investor’s interests have been sacrificed by the powerful industrialists
with the regulators remaining silent spectators. Since it is as much necessary
to invest in new opportunities as it is to protect past investments,
let’s devote this week’s discussion to these events and try to identify
an action plan for investors to protect themselves.
The First disturbing news was the fact that that 8 of the 119 companies which SEBI recently referred to Central Depository Service Ltd was found to have vanished without a trace along with about Rs 130-140 crores of pubic investments in them. These are only the recent addition to the long list of companies which have ceased to correspond with their investors and shifted out their registered office without leaving any trace. The other disturbing news was the systematic stripping down of assets by the NEPC group which came to light exposing the weaknesses in our system which enable some to raise hundreds of crores of public money through premium equity issues and gradually transfer them to private coffers. While NEPC India which seems to have lost over Rs 57 crores in the last financial year is worth a separate investigation, the group company NEPC Agro ‘s annual report for the year ending October 1999, which is in the hands of the Public and SEBI for some time now, reveals several alarming revelations which have taken away around Rs 26 crores of investor’s money in one single year. What attracts attention in the accounts is that , over the last two years, the company has written off Rs 17.23 crores of Bad and Irrecoverable Debts, Rs 6.62 crores of Stocks and Rs 1.18 crores of Capital Work in progress, totalling to around Rs 25.03 crores. Additionally, the company has invested Rs 6 crores in an unquoted investment and advanced Rs 20 crores to trading partners during the last year when the company was bleeding. These amy become irrecoverable in subsequent years. The company was however resourceful enough to raise around Rs 38 crores of public money in this otherwise bad year through Financial institutions and Banks by pledging whatever security that was available. If these eventually find their way into the NPA lists of these Financial institutions, the burden will fall on the shareholders of these institutions. When the company whose average turnover for the last two years was Rs 7 crores per annum, states that it lost Rs 6 crores worth of wheat due to damage and carries trade advance of Rs 26 crores, it is impossible to believe that things are normal. The loss of wheat stock was remarkable since the total wheat sales in 1998 and 1999 together was only about Rs 3.6 crores. When this is seen with the claim of the group that it has also suffered a loss of Rs 40.28 crores in Skyline-NEPC, because of damage and theft of spare parts while a plane was in the custody of the Customs, there appears to be a pattern of events that is unnatural. It is regrettable that the auditors of the company have not been able to alert the shareholders or come up with explanations for some of the abnormal financial losses of the company. SEBI perhaps would come in after the investors have lost their last penny in the company (as they did in the case of CRB Capital markets). When they do, they may come up with more regulations to kill other existing companies while not being able to do anything when investor’s interests can still be protected. The key to protecting investor interest
in such cases as NEPC is to first check further erosion of resources of
the company by appointing public nominees to the Board and ordering an
investigation to find the causes for the bad health of the company. If
this is undertaken only after the company becomes sick, then it would be
the classic case of trying to close the doors after the horses have bolted.
Na.Vijayashankar
|
. |