In Coal India’s prospectus, two figures have got altered. SEBI, whose decisions are often biased and whimsical, has insisted that investors must be allowed to withdraw their bids on such a negligible mistake
The Securities and Exchange Board of India (SEBI), whose decision-making has always attracted charges of inconsistency, bias and whimsicality, is probably out to redeem itself. It is out to show that it is a stickler for rules and willing to throw the rulebook at even large public sector companies.
Therefore, in a bizarre instruction, it has also forced Coal India Limited (CIL) to give all investors, including the institutional bidders, the option to withdraw their bids for a trivial mistake in the prospectus. CIL was asked to issue advertisements in newspapers to make the small correction but part of the ad is an offer to investors to withdraw their bids just because two figures got interchanged.
Consequently, at a time when the Disinvestment Ministry and CIL should be celebrating the extraordinary success of a 12-time oversubscription of a gigantic Rs15,000-crore issue, that too only to retail investors, they are smarting under what is considered SEBI's rigid stance.
Coal India today issued a notice to investors, which essentially corrects one typographical error. The figure under 'accretion in stock' and that under 'other income' for the quarter ended 30th June 2010 got inadvertently inter-changed. So accretion in stock should read as Rs54.45 million instead of Rs31,945 million and other income should read the opposite. While the numbers seem huge, there is no change in total income figures or the summary statement of profit and loss.
In any case, it is clear that it was a tiny slip.
Stunningly, for such a minor error, SEBI has asked CIL to not only issue a correction advertisement, but also asked it to give investors an option to withdraw their shares for this correction. According to sources, SEBI was acting on a complaint received from an investor.
In ads issued today, CIL has said, "In view of the above kindly note that Bidders (including QIB bidders), if they so desire, may withdraw their bids." The request for such withdrawal will have to be made before 5pm today before the retail issue closes.
It is another matter that this correction is hardly going to affect the subscription of CIL, unless the original complaint itself was mischievously designed to disrupt the disinvestment process. However, so strong is the momentum for buying good stock that investors whom Moneylife spoke to this morning were unconcerned.
We also learn that there were discussions at the highest level of the government to allow CIL to issue a correction without the offer of withdrawal, but SEBI refused to budge. The question is, was SEBI adhering to the highest standards of fairness and discipline or was it being stubborn to send a signal to the government that it cannot be 'influenced'? There will always be two opinions on the issue. But two facts are abundantly clear. One, the mistake is inconsequential. It is not an omission but a mere typographical error with no material impact on profitability numbers.
More pertinently, public sector companies, ever since the disinvestment programme began in 1991, have not followed the normal disclosure rules. It may be remembered that Mahanagar Telephone Nigam Limited (MTNL) was listed even without a prospectus! Even today, government companies are listed with a floating stock that is way below the mandatory 10% applicable to all companies. Interestingly, SEBI has not implemented the minimum shareholding norm ever, despite the occasional warning by the previous SEBI chairman.
Growing demand — both domestic and global — and China’s decision to curb output will impact prices of the metal
Global aluminium prices are likely to go up in the wake of growing demand at domestic and international fronts, coupled with China's step to slash production of the metal. According to Harbor Intelligence, a global consulting firm specialising in forecasts for commodities, aluminium prices could touch $2,700 per tonne in the first half of the next year.
But inventory levels and demand for aluminium will be the determining factor for prices. In the last month, inventories of the metal have dropped by 1.7% to 72,050 tonnes. However, after the continuous decline in the second week of October, London Metal Exchange (LME) inventories grew by 3,950 tonnes to 4.3MT.
BL Bagra, director, National Aluminium Company Limited (NALCO), in a recent interview, has said that due to low interest rates and warehouse charges, many companies have found it profitable to hold on to stocks. He also added that interest rates will be stable and large aluminium inventories will be seen till at least the beginning of 2011.
"Currently aluminium prices are about $2,300 per tonne which is slightly on (the) higher side," an analyst with Systematix Shares & Stock (I) Ltd told Moneylife, preferring anonymity. "I don't see prices going significantly up," he added.
Alcoa, the largest US aluminium producer, predicts that global aluminium demand will increase by 6% per year over the next decade.
Inventories of aluminium at the LME are steady at around 4.5 million tonnes (MT), which is much more than last year's inventories, shows LME data. Taking note of rising inventories, Alcoa curtailed its production by 20% to 25% in June.
According to Brook Hunt, a leading research firm, global oversupply of aluminium is seen at 1.5MT and 2.1MT in 2011 and 2012, respectively. Supply is set to exceed demand by 1.3MT this year and supply should match demand, at least in the next two years, added the firm.
"Inventory level in the global market is around 10MT-11MT and global aluminium consumption is somewhere close to 35MT... it means about 30% (of) yearly consumption is lagging in inventories," added the analyst from Systematix.
India's demand for aluminium is likely to grow in double-digits in the coming months as the metal's main consumers - the auto and construction sectors - are seeing high demand for their products. India's aluminium production in April-August rose 6.4% to 6,52,941 tonnes.
"Aluminium prices may show a slight drop in the short-term if the dollar is firm," said an analyst from a Mumbai-based research firm. "A weak dollar may push up prices of aluminium as it makes the base metal more attractive to non-dollar buyers," he added.
China's recent energy rationalisation programme would cut aluminium production in the country. Essence Securities Co has said that aluminium companies in Shanxi and Guizhou, which account for 6% of China's production, were told to cut capacity for four months.
The policy is being implemented in every part of China, says Essence. According to media reports, China's Jiaozuo Wanfang Aluminium Manufacturing plans to cut electrolytic aluminium capacity by 1,40,000 tonnes due to electricity shortages. The company produces 4,20,000 tonnes of aluminium every year.
Aluminum Corporation of China, China's largest aluminium producer, also says that supply would be more than demand and it expects global aluminium production to grow by 12% to 42.28MT this year, and consumption to grow by 20% to 41MT.
"China consumes 40% of global aluminium production. If Chinese companies are slashing their output significantly, then it will help Indian aluminium production," added the analyst who spoke to Moneylife.
Despite decline in profit in 2009-10, Indian aluminium major NALCO plans a Rs 6,000 crore capacity expansion project. With this expansion, the company would enhance aluminium capacity to 5.7 lakh tonnes and alumina capacity to 29 lakh tonnes. The company sees surge in demand from the auto sector and infrastructure activities in India, Europe and other countries.
However, Vedanta group's Sterlite Industries, which has contributed considerably to enhance India's aluminium production over the past few years, has put its expansion plan on hold following the environment ministry's order banning bauxite mining in the Niyamgiri hills, Orissa. The company has also decided to defer the start of its aluminium smelter capacity of 1.64MT per annum (mtpa).
Vedanta Resources had committed an investment of over Rs36,000 crore for the expansion project in Orissa.
In the past, companies have left out significant information like pending litigation against them from their red herring prospectuses. Coal India, however, was pulled up just for a typographical error
Has the Securities and Exchange Board of India (SEBI) been unduly harsh with Coal India Ltd (CIL) by asking it to give institutional investors an exit option because of a typographical error? (See: http://moneylife.in/article/81/10190.html).
A look at a few instances where such withdrawal notices had to be posted certainly suggests that is the case.
Moneylife unearthed four instances where SEBI had asked companies to give investors an option to withdraw their subscriptions from Initial Public Offerings (IPOs). They were MBL Infrastructures Ltd, Aishwarya Telecom Ltd, Anu's Laboratories Ltd, Aster Silicates Ltd and VA Tech Wabag Ltd. In each of these cases, the companies had left out significant information about litigation filed against them or complaints over non-payment. None of them pertained to something as trivial as a typographical error that does not affect the financials of the company.
In December 2009, MBL Infrastructures Ltd issued a notice saying that it omitted some information from its red herring prospectus (RHP) under the 'outstanding litigations and material development' section. The company said it did not mention in the RHP that it had been prohibited by the road construction department (RCD), Jharkhand, from participating in tenders in the state.
In the second instance, while MBL Infrastructures did provide information about a petition filed against it by Jan Kalyan Morcha, an NGO, it did not disclose its admission to certain damages to a road that it had constructed. It also failed to disclose the report and remarks of a five-member committee appointed by RCD pursuant to observations by the Jharkhand High Court to enquire into the reasons for the deterioration of the road.
Aishwarya Telecom claimed that it was a "bona fide mistake" on its part in not disclosing a case filed against it by Jaipur-based EL-Tronics before the District Consumer Forum III, Hyderabad. The company had to add a clarification in its RHP under the 'risk factors' and 'outstanding litigation and defaults' section. Aishwarya Telecom Ltd admitted that it diverted the delivery of the material ordered by El-Tronics to another client to meet "certain business urgencies", due to which El-Tronics filed a case against it.
Anu's Laboratories also failed to disclose information about litigation filed against it by Sunmoom Chemicals Pvt Ltd and had to add the same in its RHP under the 'outstanding litigations and material development' section in May 2008.
This year two companies - Aster Silicates and VA Tech Wabag - had to delay their IPOs due to non-disclosures in RHPs. In July 2010, Aster Silicates had to clarify and provide details of the allegations made by Balwant Jain and Sandip Bhandari against one of its promoters, Mahesh Maheshwari, in its RHP over pledging of shares.
In the case of VA Tech Wabag, it was found that the company provided wrong comparison about its financials and its peers in the RHP. While VA Tech Wabag provided its financials on a consolidated basis, for its peers it provided information on a standalone basis besides adding a note at the end of the table that all figures were on a consolidated basis. This was done with an intention to show VA Tech Wabag in a better position than its competitors.
After SEBI sent a letter, the company had to delete the footnote. However, in the public notice, it said that VA Tech Wabag was not in a position to confirm whether the figures are on a standalone or a consolidated basis.
Looking at the above instances, why was CIL pulled up for a simple typo?