SEBI bars ICore E Services, nine directors from raising funds via securities

SEBI also directed the company and its nine promoters and directors not to issue any offer document or advertisement for soliciting money from the public for the issue of securities


Market regulator Securities and Exchange Board of India (SEBI) has barred ICore E Services Ltd from raising money by issuing securities. SEBI also restricted the company and its nine directors, Anukul Maiti, Kanika Maiti, Swapan Kumar Roy, Radhashyam Giri, Tapan Kumar Chatterjee, Saral Ranjan Gupta, Amal Bhattacharya, Chandan Dey and Mahadeb Sen from markets till further directions.


SEBI said that ICore E Services was allegedly “mobilising funds from the public without complying with the applicable law” through issue of debentures and preference shares with promises of huge returns to investors.


The company had allegedly collected funds of Rs45.74 crore during 2009-2010.


SEBI observed that issue was made to over 50 persons which under the rules made it a public issue of securities and hence would require a compulsory listing on a recognised stock exchange. The company was also required to file a prospectus which it failed to do.


Consequently, in an order, SEBI has barred the firm “from mobilising funds through issue of equity shares, debentures, preference shares or through issuance of any kind of security to public, and/or invite subscription or deposit, in any manner whatsoever, either directly or indirectly, till further directions”.


SEBI also directed the company and its promoters and directors not to issue any offer document or advertisement for soliciting money from the public for the issue of securities, till further orders.


They have been also barred from disposing of any of the properties without prior permission from SEBI. Besides, it cannot divert any funds raised from the public which are kept in bank account(s) and/or in the custody of the company.


The company and its promoters and directors also have to furnish all details sought by SEBI for its probe.


The directions would take effect immediately. SEBI had received complaints and references alleging that various companies including ICore E Services is mobilising funds from public, through issue of securities and misrepresenting that they had permissions and licenses for doing so from regulatory agencies like SEBI, Ministry of Corporate Affairs.


The complaints alleged that the company did not have any profitable business and that the only source for refunding was from fresh money collected.


It was also charged that the company invested the mobilised money in loss making businesses and wasteful publicity through advertisements.


Growing importance of Indo-Myanmar relations

There are excellent opportunities for setting up urea plants in Myanmar. This would help Myanmar to increase its agricultural production and also help India, as the agreed balance of urea could be shipped back to India


India's External Affairs Minister, Sushma Swaraj is on a visit to Myanmar on Friday to attend the India-ASEAN Foreign Ministers' meeting. She will attend the East Asian Summit meeting for Foreign Ministers as also the ASEAN Regional Forum (ARF) that would focus on security policy for its member countries.

Her three day visit to Nay Pyi Taw, where these meetings will be held covers a hectic schedule.  Since taking over as the External Affairs Minister, Sushma Swaraj has already visited Bhutan, Bangladesh and Nepal.

While in Myanmar, she is expected to call on President Thein Sein and discuss important issues affecting both countries.  One may presume that this will also give her the opportunity to extend the invitation to President Thein Sein to visit India, on behalf of Prime Minister Modi.

She will be meeting U Wunna Maung Lwin, her counterpart in Myanmar and hold discussions to promote trade and create interest for joint ventures in their country. She will not be able to meet the popular opposition leader, Aung San Suu Kyi.

It may recalled that Essar Projects Ltd, as a construction contractor, is working on the Rs350 crore port-cum-waterway project, sponsored by India, which is expected to be completed soon. This project involves building the Sittwe port and a jetty at Paletwa. Besides, dredging the Kalandan River is nearing completion. When completed, it will facilitate an easy connection for India to ship goods from Kolkata port to Mizoram, via Sittwe.

India and Myanmar have a long land border (1,646 kms) and border trade was legalised in 1995.  On the whole, the trade between both the countries has only reached $1.87 billion. There is potential for more than $6/8 billion a year.

One major area where India has made headway is in securing a contract of exploring two hydrocarbon blocks in March this year. Reliance was one of the successful bidders and the other has been won by a consortium of Oil India Ltd, Mercator Petroleum and Oilmax Energy.  This group has won three blocks for exploration. It now remains to be seen as to who strikes commercially viable gas or oil in these blocks!

At the moment, the largest buyer of Myanmar gas is China, who has laid a long pipeline to their country. China is fully entrenched in Myanmar and it would take a herculean effort to dislodge them from this position. Considering the  geopolitical situation, India has to do its best in securing some interesting and useful joint ventures, in such fields as the fertiliser industry, in making urea locally from the gas produced. This would help Myanmar to increase its agricultural production and also help India, as the agreed balance of urea could be shipped back to India. In fact, on such a project, Railways could be associated in laying a track to ship the goods upto Sittwe port from where it can be exported to India.

Myanmar would be happy to be associated with India and India should be able to offer easy credit facilities to this country. For making this possible, one hopes PM Narendra Modi visits Myanmar soon and offers similar terms, like he did with Nepal.

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)


ARC fees: RBI restores sanity
RBI has replaced the 5:95 model with 15:85. Can something be done to retain the current cost structure for ARCs and mitigate the management-fee driven model? Here are the options
Stung by the aggressive management-fee based model adopted by Asset Reconstruction Companies (ARC), Reserve Bank of India (RBI), on August 5, 2014, has disbanded popular 5:95 model by enhancing ARC’s minimum Security Receipt (SR) subscription to 15%. In the 5:95 model, ARCs could fund their NPA acquisition by issuing Security Receipts (SRs) to the seller banks for up to 95% of NPA acquisition cost, with a minimum of 5% of the SRs being funded in cash by the ARCs. The management fee that was earlier linked to the outstanding SR value has now been linked with the lower end of the Net Asset Value (NAV) of SR based on the credit rating. What will be the impact of the new 15:85 model? See the graph below.
The 5:95 model with back-ended recovery profile gave attractive returns to the ARCs for different levels of recovery (30% to 110% of acquisition cost) from 21% (pre-tax Internal Rate of Return) to 32% over 5-year resolution horizon. For the same recovery range, the 15:85 model delivers poor returns, ranging from -11% to 10%. In order to match the 5:95 returns, the acquisition costs have to be substantially lower, ranging from 17% to 37% of the 5:95 acquisition cost. For a modest 20% return in the above range, the acquisition cost has to be 18-66% of the 5:95 acquisition cost. What do we infer from this?
First, correlation between acquisition cost and recovery has been restored. The ARCs will have to assess recovery prospects carefully. Even for a modest 15% return, with back-ended recovery profile, ARCs will  have to clock total recovery of app. 135%. As we have seen earlier, for recovery beyond acquisition cost, front ended recovery is most beneficial to the ARCs. Hence for enhancing returns, ARCs will have to speed up the recovery process.
Second, in 15:85 structure, probability of SR write off and back-ended provisioning by the banks will tend to be zero. This will result from acquisitions by ARCs at realistic values, which would evidently entail immediate provisioning by the banks. The banks will now have to be bold to sell the portfolios notwithstanding immediate provisioning. The bank chiefs will no more be able to leave this unpleasant job to their successors.
Third, acquisition volumes will shrink. No wonder the RBI is considering licences for new entrants. Could something be done to retain the 5:95 structure and mitigate the management-fee driven model? Yes. There are options.
Lower management fee: In the above model, with 5:95 structure, same returns as with 15:85 models are achieved if the management fee is reduced from 1.5% pa (on outstanding SRs) to app. 0.50% pa. The banks are aware of the impact of management fee, and have been allowing 2% management fee to attract aggressive bidding for certain portfolios.
Link the management fee to recovery: Equitable cash distribution is possible, if the management fee is linked to the actual recovery. The graph below shows that the management fee of 0.75% of the cash recovery with a back-ended recovery profile results in positive IRR to the ARC beyond 60% recovery, and a modest 16% IRR at 110% recovery, with no SR write off and loss to the banks. Linking the fee to actual recovery poses income recognition problems which can be resolved. 
The major challenge with the recovery model is the bid evaluation by banks. If the management fee is linked only to the recovery, what is the utility of the acquisition cost quoted by the ARCs? And how will the banks evaluate the bids? The conflict can be resolved easily by linking the recovery to the acquisition quote on the lines the private equity fund managers share the upsides. Even with 5:95 structure, the recovery based model can be designed sans the moral hazard with current 5:95 model. This model will do away with the need to determine NAV based on the subjective and often unrealistic credit rating needed in 15:85 structure, and will, therefore, be more scientific and cost efficient. It is expected that in due course, RBI will adopt this alternative recovery based fee model.
To sum up, the 15:85 structure is the right move but not final. ARCs will come into being only when the legal system is revamped as I mentioned earlier.
(Rajendra M Ganatra is Managing Director & CEO of India SME Asset Reconstruction Co Ltd-ISARC. He had over 25 years of experience in project finance, asset reconstruction and financial restructuring. The views expressed in above article are personal)



Prem Shinkar

3 years ago

Great & comprehensive assesment of the changes. Thankyou Sir.

Sunil Karunakaran

3 years ago

This simply gets better and better. The writer has very quickly assessed the likely impact of the recent changes by the regulator and more importantly even suggested better options for consideration. It will be interesting to see how things pan out.

G Sampath Kumar

3 years ago

A good move by RBI to increase the stake of ARCs in Security Receipts. The authour may indicate whether this move will lead to additional due diligence, more caution while bidding for portfolios by ARCs, consolidation of ARCs, etc.?

Ramesh Kubde

3 years ago

Both the articles of the author on ARCs are very informative and analytical. It gives insight to the working of ARCs as well explains the reasons for spurt in sell of NPAs by Banks to ARCs. Expects many more such thought provoking articles.
However, I do not agree with Mr.Gopalkrishnan's comments of collusion between Banks and ARCs in sell of NPAS. Such cases, if any would be an exception.

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