DB Realty’s IPO received just 23,000 applications after the company spent Rs13.50 crore for its ads in The Times of India alone. NTPC’s FPO received just 80,000 applications. This has set the alarm bells ringing for decision makers
Retail investors continue to shun public issues. This has at last created panic among decision makers. The pride of the nation, National Thermal Power Corp (NTPC), managed to get an overall subscription of 1.2 times for its follow-on offer (FPO) with a retail participation of just 16% of the total 42.8 million shares reserved for the retail investors’ category. For its total shares on offer, NTPC received a dismal 80,000 applications from retail investors all over the country. This will be no surprise to the readers of this website. On the day NTPC opened, Moneylife had written that the NTPC issue will not attract retail participation thanks to a variety of reasons (see here). The issue opened on 3rd February.
More than NTPC, the high-profile DB Realty’s initial public offering (IPO) has failed miserably. After spending a whopping Rs13.50 crore for advertisements in the Times of India (ToI) group alone, the DB Realty IPO, which opened on 29th January, received just 23,000 applications for its Rs1,500-crore issue. It received a pathetic 457 applications from high net-worth individuals (HNIs). It is a different matter that even the ToI group advised its readers to stay away from the DB Realty IPO! (http://economictimes.indiatimes.com/features/investors-guide/DB-Realty-IPO-Investors-are-advised-to-stay-away/articleshow/5521419.cms)
The gross and continuous failure of issues to attract retail subscriptions has started ringing alarm bells among decision makers. If this continues, the government’s disinvestment programme will be badly affected. Poor retail participation is the result of years of poor regulation and malpractices by market participants, which have caused equity products to perform very poorly. “It is a crisis situation,” says an IPO expert.
The crisis has been building up over a period of time. Godrej Properties received 18,300 retail applications and 50 from HNI investors for its IPO. JSW Energy received 86,559 retail applications and just 97 from HNIs. MBL Infrastructures received just 3,616 retail applications and only 29 applications from HNIs. Den Networks (Rs195), an associate of Network18, received 3,916 retail applications and 50 from HNIs at the end of October 2009. Aqua Logistics, which was to close on 2nd February, revised its price band downwards and extended the date after failing to attract investors.
The disinterest of employees is another feature of many IPOs. The employee segment of MBL Infrastructures received only 26 applications (0.12% subscription); Astec LifeSciences received 55 employee applications (0.5% subscription), while Euro Multivision had an embarrassing 16 employee applications (0.3% subscription). Even in the case of NTPC, out of the total 42,73,220 shares reserved for the employee category, only 43%(18,73,807) of the shares were subscribed. If employees are unconvinced about a company’s pricing and prospects, how can it attract others?
As the government gets ready to raise Rs30,000 crore through disinvestment of PSU shares, its biggest worry ought to be the vanished retail investor. But regulators and officials are busy fighting turf battles or protecting personal interests. Meanwhile, India's investor population has plummeted from the claimed 20 million (probably exaggerated) in the 1990s to eight million (according to the Swarup Committee report of 2009), and is probably even smaller in reality.
Shipping companies plan to replace old vessels with newer ones. But these moves may be affected due to the tonnage tax code and the additional tax on capital gains earned from such phased-out vessels
With the decline in asset prices for new ships, many shipping companies are planning to replace their fleet with newer vessels. However, the tonnage tax and the additional capital gains tax charged on earnings from phased-out or sold vessels could be a stumbling block, says a tax expert.
“As per the tonnage tax code, shipping companies have to pay tax as per their total tonnage and not on a profit or loss basis. When you sell a ship, you realise a certain amount and when you realise more than the depreciated value, it is a capital gain, which is not covered in the tonnage tax code. Thus, the company has to pay an additional tax on this capital gain,” said Samir Kanabar, partner for tax and regulatory services, Ernst and Young.
Talking about the likely effect of this tax on the balance sheets of shipping companies, he said, “For the phasing-out of single-hull vessels, a 9-12 month window is available. In this period, people will either be upgrading or selling (their fleet). This will thus start reflecting in the next two to three quarters in their books.”
Typically, companies which are actively buying new ships, also have a considerable number of vessels to be phased out. Shipping Corp of India (SCI) has recently placed an advertisement for two more new ships. Moneylife had earlier reported that SCI had 10 single-hull vessels to be phased out, out of which it has already sold five ships. It plans to sell the remaining five by 2010.
GE Shipping is planning to sell five single-hull ships for scrapping. “We may not necessarily phase out all the vessels by 2010. We will plan the phase-out as per the opportunities available and will consider fixing a fleet-age limit of 25 years,” said Anjali Kumar, head of corporate communications, GE Shipping.
Mercator Lines also plans to phase out three of its existing single-hull vessels ahead of the implementation of the International Maritime Organisation (IMO) guidelines on phasing out of single-hull vessels.
Apart from the phase-out, the tax expert pointed out that shipping companies are buying new ships and selling old ones even if it is not mandatory, in order to have a younger fleet. “In terms of buying a new ship, the tax code does not matter, other than the added tonnage tax. However, you have to pay an added tax on the capital gains from the old ship sale,” Mr Kanabar said.
A 70-year-old non-resident Indian woman was lured into buying an insurance plan by paying a single premium of Rs10 lakh when she approached a bank to open an NRE account
Mis-selling by institutions like insurance companies is not new. However, with more and more financial institutions entering the insurance market, customers of a particular institution are being lured and sometimes even forced to buy co-branded products. One such incident highlights the need for stricter practices by insurance companies.
About a year ago, a 70-year-old non-resident Indian (NRI) woman went to one of the largest private sector banks in the country to open a non-resident external (NRE) account. While opening the account, an executive from the bank lured the lady into buying a co-branded insurance product under the pretext of ‘mandatory’ rules. He also told her that she will have to pay the amount of Rs10 lakh only once. With no option left for opening the account, the lady obliged and left for her overseas home.
“When that lady returned after 12 months, she was asked to pay one more premium for the insurance plan. Since the bank would not return the money which she had paid for the first premium, she was again forced to pay the second instalment for the insurance policy that was forced upon her,” revealed an independent financial advisor (IFA).
It was later found that the executive who had sold the lady the insurance policy was no longer working with the bank.
In another case, another executive from the same bank has allegedly duped a 60-year-old into paying a premium for an insurance plan for one year and later told him to forget about it.
These are only two examples of cheating by executives from financial institutions, who more than often try to sell a co-branded product to innocent customers.
To tackle such increasing fraudulent cases, the Reserve Bank of India (RBI) introduced a banking ombudsman scheme under Section 35 (A) of the Banking Regulation Act, 1949. The Act is in effect from 1995. A customer can register a complaint with an ombudsman if no reply is received from the bank within one month, or if the bank rejects the complaint, or if the customer is not satisfied with the reply given by the bank. If a complaint is not settled within one month, the banking ombudsman may pass an award up to Rs10 lakh or to the extent of the losses suffered by the customer up to Rs10 lakh, whichever amount is lower. Between the years 2002-06, the banking ombudsman has settled around 36,000 complaints.