CRISIL says rating downgrades outnumber upgrades for the first time in eight quarters

Downgrades of corporate ratings are predominantly due to weakening liquidity, volatile rupee, and pressure on demand and profitability says the ratings agency

Ratings agency CRISIL said during the third quarter, its ratings downgrade outnumbered upgrades for the first time over past eight quarters. With downgrades continuing to exceed upgrades in the next few quarters, CRISIL said, it expects pressure on the credit quality of Indian companies to continue.

“Our downgrades have outnumbered upgrades for the first time in eight quarters. We expect pressure on the credit quality of Indian companies to continue, with downgrades continuing to exceed upgrades in the next few quarters. High interest rates and sharp movement in currency value have added to the list of woes that India’s corporates face,” said Ramraj Pai, director, CRISIL Ratings.

The ratings agency said its rating action ratio (RAR), an indicator of the relative frequency of upgrades to downgrades, declined to 0.99 times in the third quarter from 1.11 times for the corresponding quarter past year. A third of the downgrades were caused by pressure on demand or profitability. Another third of the downgrades was the result of weakening liquidity, either on account of stretched working capital requirements or large capacity expansions; liquidity has emerged as a key monitorable for CRISIL in its ratings of entities.
 
CRISIL said, rating upgrades, however, were driven not so much by industry-wide factors, as entity-specific ones—including equity infusions by promoters resulting in correction in capital structure, and stabilisation of new capacities, which were earlier in project-implementation phase.

According to Mr Pai, corporate India continues to face challenges both in the domestic market, where there has been a slowdown in the economy and in infrastructure activity, and on the export front, with uncertainty looming large in Europe.

CRISIL’s estimates indicate that foreign currency debt of about USD17 billion will come due for repayment in the next 18 to 24 months. Refinancing the debt may be difficult because global investors have become increasingly risk-averse, given their  uncertain economies back home, the ratings agency said.

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IPO Crackdown-3: Tijaria Polypipes

Due to the sharp fall in price of the scrip on the listing day (from around Rs60 to Rs18.10), genuine investors who had purchased the shares on the first trading day have been left with no option, but, to continue holding the shares which have hardly any value and thus incurring huge losses

As part of the nationwide crackdown on Initial Public Offerings (IPO), the Securities Exchange Board of India (SEBI) has barred Tijaria Polypipes (TPL) as well as several individuals and stock brokers from accessing the securities market. As reported earlier, Hem Securities, the merchant banker to the issue, was spared from any wrongdoings. Incidentally, the merchant banker has had a history of violations in the past (see http://www.moneylife.in/article/72/22897.html).

On 27 September 2011, the company raised Rs60 crore to fund its proposed expansion and diversification plans at Rs60 per share. On 14 October 2011, the day of the listing, the stock trended much of the day between Rs40 and Rs60 before it collapsed to Rs18.10 towards the end of the day. SEBI received a complaint alleging insider trading and artificial volumes had caused huge losses to retail investors.

An investigation exposed a shocking tale of manipulation and deceit through the collusion with certain retail and qualified institutional buyers (QIBs). The three QIBs—Sparrow Asia Diversified Opportunities Fund, Credo India Thematic Fund (CREDO), and IPRO Funds were clearly allowed to exit the stock on listing day at a premium to the issue price. They exited at an average price of Rs62 per share, while the stock closed at Rs18.10 towards the end of the day.

The higher exit for QIBs was orchestrated through a set of brokers, namely—Grishma Securities Pvt Ltd (Grishma), Parklight Securities Ltd, Pinac Stock Brokers Pvt Ltd, and Volga International. These stock brokers used certain individuals as front-runners to buy the stock from QIBs and retail allottees who wanted to sell them. These individuals were neither original allottees nor subscribers to the IPO of TPL. A simple Google search will show that Parklight Securities has been habitually in trouble—it was banned for six months in 2003 was involved in the infamous Nissan Copper case and at least 15 other cases of manipulation. Each time, a generously indulgent SEBI allowed it to escape with a minor suspension, illegal administrative warning or a paltry settlement under its consent order scheme (see http://www.watchoutinvestors.com/history.asp?def_code=C0003520 ). Doesn’t this warrant a full fledged investigation?

These stock broking entities were creating artificial volumes in the scrip by carrying out structured reversal of trades, thereby inducing the innocent investors to purchase the shares of the company on the first day of its listing.

One of the stock brokers, Grishma, had used one particular client, Jivraj Zala to trade heavily in the scrip of TPL on the listing day leading to a loss of over Rs9 crore, without collecting any margin from the person. How did Grishma fund Mr Zala? Grishma manipulated the client ledger of Mr Zala to give an impression that there were funds in his account, by using other clients’ funds. This is not all. There were several other brokers who were front-running select clients in this manner, as well.

Grishma abused the KYC process by allowing Mr Zala to rack up several crores of losses, Rs9.95 crore to be precise, and yet KYC records showed that he had only an annual income of less than Rs4 lakh.

TPL lied in its prospectus that it had not raised any “bridge loans” when it had actually raised as much as Rs12.5 crore through inter corporate deposits (ICDs). According to the company, the ICDs were used to meet “business needs for a project under consideration”.

The companies that were issued ICDs, namely Nihita Financial Services Pvt Ltd, Bellisima Impex, Balasaria Holdings, were involved in diverting the IPO proceeds of TPL to select individuals and entities. For instance, Bellisima Impex transferred money received from TPL towards ICDs repayment, to Jivraj Zala, the very same retail client who lost crores of rupees.

Moreover, when the company was asked to produce evidence of ICD agreement papers, it produced fabricated copies, which were done in a very shoddy and amateurish manner, thinking it could outwit SEBI. Why did Hem Securities, the merchant banker to the issue, not verify this material fact?

To cut a long story short, TPL had orchestrated a very convenient exit for QIBs and certain retail allottees by arranging certain stock brokers to have a counter-party ready in order to buy out the IPO allottees at high prices, before the price plunged from roughly Rs62 to around Rs18.10. Due to the sharp fall in price of the scrip, genuine investors who had purchased the shares on the first day of listing have been left with no option, but, to continue holding the shares which have hardly any value and thus incurring huge losses.

The entire modus operandi was conducted in similar fashion with other brokers and entities which can be described in the graph below:

 

As a directive, SEBI has ordered TPL to deposit roughly Rs45 crore in an escrow account until further orders. This means the investors will not be getting back their money soon

 

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COMMENTS

Ajit Jacob

5 years ago

During the last 5 years approximately 120 IPOs and FPos were subscribed in India. Today out of that 98 are showing highly negative return to investors ranging from 5% to 90%
Premium chareged at IPOs are very much on the higher side and without any justifications .A new company before starting production or oits main operation ,how can they charge heavy premium in IPOs.I is because there is no regulator controlling IPOs and FPOs taking undeue advantage of the liberalisation unreasonable premiums are charged.A promoters are hand in glove with Merchant bankers ,big brokers and market manipulators and grey market operators work for making an IPOs fully subscribed by unfair means Then most of the clever get out on listing then the genenuine investors are the one who suffer heavy losses.There must be fair formula to decide the premium and the same should be under the control of the Regulators.SEBI and stock exchanges.Culptrits should be puunished and black listed. The regulatros should also see that the money raised by IPos or FPOs are utilized for the same purpose which has been mentined in Prospectus etc.

KSGupta

5 years ago

I am a senior citizen and with a very small pension income.I am stuckup with 1000 TPL shares at very high price.My only reason investing in this co is that Tijaria is a jain religious place and no jain will ever miss use the name.
But hugely cheated by a jain promoter.May Gold bless them.
Regadrs

pcchacko

5 years ago

During the last 5 years i.e from 2006 to 2011 there were 120 IPOS and FPOS Out of this 120 98 issues are giving negative returns and that too varying from 5% to 95% You can get upto date information from chittorgarh.com IPO tracker and verify yourself the exact position The SEBI,BSE,NSE,RBI ,Finance Ministry and Ministry of company/corporate affairs are not bothered about this They have not taken any action against errant promoters,Merchasnt Bankers and Issue Managers. They should call for explanation and verify how they have charged high premiums and how the money raised from these issues are used or misused.Those promoters and Merchant Bankers should be severly punished and recover the loot from the promoters and pay back to investors. Before starting operationor even before acquiring land and offices for set up of business they are charging high premiums.Some how due to underground operations among GREY MARKET OPERATORS, CIRCULAR TRADING AND ,CROOKED BROKERS AND INVESTMENT ADVBISORS THE ISSUES GET FULLY SUBSCRIBED AND SOME TIMES MANY FOLDS
CLEVER OPERATORS WHO KNOW THE UNDERGROUND PLAYS MANAGE TO GET GOOD PRICE ON LISTING DAY AND GET OUT AND ONCETHEY ARE OUT INNOCENT INVESTORS SUFFER.GOVERNMENT, THE MEDIA AND THE REGULATORS SHOULD LOOK INTO THE MATTER SERIOUSLY AND TO TAKE DRASTIC ACTIONS
in MANY CASES THE FUND MANAGERS AND ASSETMANAGEMENT COMOPANIES OF MUTUTAL FUNDS ARE ALSO HAVE HAND IN GLOVE WITH SUCH ISSUES.

REPLY

Hemant

In Reply to pcchacko 5 years ago

It's a fact that regulators fail in their duty,but finally it's our money we have to protect,so before blaming others,we have to introspect & do some basic research.If some one ask for money we try & verify the matter,even it is from relative or neighbour,or our regular servent,but we put money in stockmarket like depositing in temple,where questions should not be asked:),& after loosing try & blame everyone,except self.

pcchacko

In Reply to Hemant 5 years ago

Every investors are not financial experts does not understand the foul play done by promoters,Merchant bankers and QIBs BIG Brokers.People learn by experience that does not mean that the Regulators keep their fingers crosssed while large scale mafia is working withoutany fear of facing any consequences of their foul play.What I asm trying is to creat an awareness amont the genuine invetsors not to go for any IPO now unless they are quite sure about the safety.Only 10% corporate houses are honest The rest are trying to loot.

Hemant

In Reply to pcchacko 5 years ago

We both are aiming for same but i state that we just can't blame authorities only(They will always act after the event is over),we have to blame us also for throughing our hard earned money & you don't need to be expert for doing basic research.Further if you notice letter from K.C Gupta,herein above,investment was made because Tijaria is jain religious place,now how can you make investment base on the companies name,that also by a person who is getting small pension income ?Any way we all pay price for getting experience,as nothing comes free.Period...

Hemant

5 years ago

Stop calling the persons who got stuck,as genuine investors,as they doesn't belong to that catagory.

IDBI Bank launches India's first online Retail G-Sec Portal

The G-Sec Portal provides an opportunity for retail investors to invest in Government securities, as an attractive alternative investment avenue.

IDBI Bank Ltd. has launched India's first online retail G-Sec Portal.  This Portal provides an opportunity for retail investors to invest in Government securities, as an attractive alternative investment avenue.  Government Securities are bonds issued, both by Central and State Government. IDBI Bank organized a function to launch the portal which has been christened "IDBI Samriddhi G-Sec Portal".  This Portal will become operational from 17 January 2012.  

The function to launch the Portal was attended by a large gathering of HNIs (high net worth individuals) and senior officials from co-operative Banks.  The launch of the Portal was done in the presence of senior officials of RBI (Reserve Bank of India).  

RBI during various policy pronouncements has been emphasizing the need for banks to take necessary steps for providing the infrastructure for retail investors to make investments in Government bonds. Melwyn Rego, executive director, IDBI Bank Ltd., mentioned that, "IDBI Bank has been a pioneer in introducing a number of new financial products and services. The launch of the IDBI Samriddhi G-Sec Portal is one more such pioneering initiative.  Retail investors having access to the internet and a Demat account can now freely buy and sell Government Bonds at the click of a button through IDBI Bank's website, thereby making the entire transaction transparent and a seamless process. This initiative by IDBI Bank is the first organized effort to channelize retail savings into Government bonds through a dedicated Portal.  Retail investors thus get a rewarding opportunity to participate in the India Growth Story."

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