In his new book, investor-activist Virendra Jain discusses issues like the disappearance of companies after fund-raising and monitoring of companies, based on his study of public issues by 243 firms between 2001 and 2009
Salman Khurshid, minister of corporate affairs, yesterday released a book titled ‘Wealth Creation and Destruction through Initial Public Offerings (IPOs) in India 2001 to 2009’, by investor-activist Virendra Jain. Praising the book, the minister said that the book has invaluable information which can be of assistance in policy formation.
The book provides detailed information on a range of issues and factors affecting IPOs along with a comprehensive study of 243 IPOs during the period 2001 to 2009 that contributed to the creation and destruction of wealth. The aim of the study was to find out constraints affecting IPOs and their possible solution through a policy framework.
Speaking on the occasion, Mr Khurshid underlined the need to create a situation where investors would have confidence in the capital market. Asked about the issue of the end use of funds raised through IPOs that is discussed in the book, Mr Khurshid said, “This essentially is an overlapping area with SEBI and the Ministry of Finance and we are looking into it”.
The study looks at various facets of IPOs such as issue price, role of merchant bankers, the process of grading (mandatory as per guidelines of the Securities and Exchange Board of India), laws, the policy governing IPOs, along with statistical data and information such as price history, and comparison with the Sensex of these IPOs. The book includes IPOs of the companies from both public and private sector. The book also specifically gives details of over and under-performing IPOs.
The book comes up with some interesting facts. It states that the Rs 1,07,373 crore raised by the 243 IPOs is nearly equivalent to the amount raised by a single IPO in China. It reveals that one out of every two IPOs of private companies resulted in wealth destruction and three out of 10 quoted at less than half their issue price.
Mr Jain provides reasons why the Indian market failed to retain, attract and sustain retail investors, despite transforming from a paper-based to a paperless online system. One reason is vanishing companies, where companies in the 1990s vanished after raising public funds, leaving investors cheated. Following this the government appointed a joint coordinating and monitoring committee in 1999. The study states that “the process of monitoring of companies by stock exchanges is weak and not adequate to act as a preventive measure”. The other prominent factors for low participation of retail investors are compulsory delisting, defunct stock exchanges, scams and reduction of shares earmarked for them in the IPOs.
The over-pricing of IPOs by corporates, which was not sustainable in the long run, eroded investors’ confidence, Mr Jain writes in the book. He says PSUs were an exception as they fixed reasonable and fair prices. Interestingly, the use of technology is also cited as one of the factors for the decline in the number of investors. It states that the hassle of opening and operating a demat account and various charges levied on the account have affected the participation of investors in the market.
Mr Jain offers some solutions to the problem of dwindling investor interest. He says that an increase in the minimum securities offered in IPOs would lead to an increase in the liquidity, curb price manipulation and enhance efficiency of the price discovery mechanism. He suggests that the minimum offer to be made to the public be increased to 25 % from the current 10% of the post-issue.
He also suggests strengthening the IPO grading system whereby the process and the grading agencies should be made accountable and transparent. Fees paid to the grading agencies should be de-linked from the issuer company and must be paid by the stock exchange or SEBI. The report calls for strengthening the process of disposing of objections in the draft prospectus received by SEBI prior to opening of the issue and the final decision to be put on the SEBI website, which would enhance the confidence of investors in the system.
Other suggestions such as monitoring the end-use of funds should be done by the authority to ensure that funds are used for the purpose as stated in the prospectus. Monitoring share prices after listing and allotments, monitoring companies after listing, are some other key solutions mentioned in the report. It emphasises on compensation and empowerment of investors in the event of loss due to fraud, unfair trade practices, insider trading and so on. Lastly, the report appeals for the simplification of the processes for opening and operating a demat account.
The book ends on the note that PSUs through IPOs can revolutionise the security market and accelerate economic growth by following the pricing principle they followed from 2003 to 2008 which led to immense wealth creation.
New Delhi: Onion prices were steady at Rs40-Rs50 a kg in the retail markets of all metros but Chennai where it soared by Rs20 per kg, even as rates of tomato and garlic fell sharply in Kolkata and Mumbai, reports PTI.
Fall in arrival of supplies led to the sharp surge in onion prices in Chennai, traders said, pointing that against 10 lorries yesterday only three lorries arrived in the wholesale market there today.
Delhi, too, saw wholesale rate of onion increase by about Rs3 a kg in Azadpur mandi, Asia's biggest wholesale market of fruits and vegetables, due to drop in arrivals owing to fog, but there was no pass through effect in retail prices.
The wholesale rate at Azadpur ruled at Rs12-Rs40 per kg.
Good news for households came from Kolkata and Mumbai where prices of tomato and garlic eased by up to Rs15 per kg and up to Rs100 a kg, respectively, today, although they remained unchanged in Delhi and Chennai at Rs40-Rs50/kg and Rs250-Rs300/kg respectively.
Besides a marginal rise in Delhi, wholesale rate of onion also rose in Pimpalgaon (by Rs8/kg at Rs46/kg) while it eased substantially (by Rs16/kg at Rs31/kg) in Lasalgaon (the largest onion market in the country).
Nashik-based National Horticultural Research Development Foundation director RK Gupta attributed today's onion price rise at Pimpalgaon to farmers' unhappiness over softening of rates.
"Some farmers in the area are unhappy over softening prices of the vegetable and hence are bringing less quantity to the purchasing centres," Mr Gupta told PTI over the phone.
Azadpur market-based Onion Merchants Association general secretary Rajendra Sharma said: "There has been substantial fall in number of vehicles arriving in the market today from Rajasthan, Maharashtra, Gujarat and Madhya Pradesh."
Only about 550 tonnes of onion reached Azadpur market today against 850 tonnes yesterday, Mr Sharma added.
In the national capital, state-run outlets such as Nafed, Kendriya Bhandar and NCCF were selling the edible kitchen bulb at a concessional rate of Rs35 a kg, while Mother Dairy was vending onions at Rs40 per kg.
"Onion continues to sell at Rs40 a kg from our outlets in Delhi today...the rate is monitored on a daily basis after watching the price trend in the wholesale market," Mother Dairy spokesperson Neha Banerjee told PTI.
Meanwhile, a team of agriculture ministry officials reached Nashik today to assess the extent of damage to the crop due to unseasonal rains in November-December this year, official sources said.
Onion had shot up to Rs70-Rs80 a kg in the last fortnight, prompting government to take urgent action including a ban on exports and abolition of import duty, while many state governments facilitated sale of onion at a concessional price.
As onion prices started easing following government intervention, prices of tomato and garlic had started surging.
A top agriculture ministry official said yesterday that there was no rationale behind the increase in rates of tomato and garlic, even though one could appreciate the spurt in onion on account of the damage to the crops due to rain.
In Mumbai today, tomato prices fell by Rs12 a kg at Rs48/kg from yesterday's level of Rs60/kg while it dipped by Rs15/kg at Rs25 per kg in the Eastern metropolis.
Garlic, which is used both as a kitchen spice and to make ayurvedic medicines, fell sharply in Mumbai and Kolkata by Rs100/kg and Rs50/kg respectively. It sold at Rs200/kg in the two metropolis from Rs300/kg and Rs250/kg respectively there yesterday.
An Empowered Group of Ministers on food headed by finance minister Pranab Mukherjee is meeting here in the backdrop of high prices of vegetables, especially onion, tomato and garlic.
A report from Lucknow said that prices of onions tumbled in the wholesale market today after the district administration opened 25 outlets for sale of the vegetable at Rs22-Rs24 a kg since yesterday.
Buoyed by the success of the outlets, the district administration plans to open 25 more outlets to sell onions at low rates, an official said.
Sources in Azadpur market claimed that in order to cash in on the exorbitant prices of garlic (at Rs300 a kg in retail and Rs120-Rs180/kg in the wholesale market), some traders were illegally bringing garlic from China into the country via Nepal.
India had banned import of garlic from China two years ago following the detection of fungus in consignments of Chinese garlic.
From the Himalayan states, it is being transported to Delhi, Chennai, Mumbai and Coimbatore through trains from Bihar, which shares a border with Nepal, they claimed.
New Delhi: The Petroleum and Natural Gas Regulatory Board (PNGRB) has invited bids for laying two natural gas pipelines, which will partly include the one already being laid by Reliance Industries (RIL) to transport gas from its eastern offshore fields, reports PTI.
The oil and gas regulator has invited expression of interest (EoI) for a pipeline from Chennai (in Tamil Nadu) to Nellore (in Andhra Pradesh), according to an advertisement by the board.
This section is part of the 600km Kakinada (in Andhra Pradesh) to Chennai that RIL was authorised to lay to transport natural gas from its eastern offshore KG-D6 fields.
PNGRB has similarly invited bids for a line from Kakinada to Visakhapatnam and Srikakulam in Andhra Pradesh, which form part of RIL’s under-implementation 1,100km Kakinada to Basudevpur (in Orissa) pipeline.
The board invited bids even through the question whether the regulator is empowered to give firms the authorisation to lay pipelines is to be decided by the Supreme Court.
PNGRB had previously invited bids for 1,585km pipeline from Mallavaram on the east coast of Andhra Pradesh to Bhilwara in Rajasthan, 1,680km line from Mehsana in Gujarat to Bhatinda in Punjab and 740km Bhatinda to Srinagar via Jammu line.
A consortium led by Gujarat State Petronet (GSPL) emerged a winner in the bids but the regulator is yet to issue formal authorisation in absence of the court decision on its authority to do so.
Section 16 of the PNGRB Act, which gives the board the powers to authorise entities to lay pipelines and build city gas distribution networks, was notified only on 15th July this year.
Irrespective of the Section 16, PNGRB had during past three years gone ahead with invitation of bids for city gas projects and pipelines, a move that has been challenged in the Supreme Court.
The apex court has posted the matter for hearing in August 2011.
A PNGRB official said RIL has been slow in implementing the two pipelines as well as the 670km Chennai-Tuticorin pipeline and so the board invited EoI to lay the sections.
RIL, on the other hand, has written to the PNGRB saying it has already completed acquisition of right-of-user (ROU) for the pipelines and the delay, if any, in the implementation was due to the uncertainty over who the government is going to allocate gas from KG-D6 fields.
The company says it does not have freedom to market the gas and a pipeline will become infructuous if the gas was allocated to regions other than where the line has been laid.
RIL was authorised to lay the two pipelines besides the Kakinada to Bharuch line in Gujarat, which is already operational.