70% of Interlink Petroleum held in physical form; will help price-riggers

The bulk of Interlink’s shares are in physical form even as market punters peddle rumours about its oil find. This will help price-riggers

At a time when dealing in the securities market is becoming more technologically driven, Interlink Petroleum Ltd, a company engaged in exploration and production of oil & gas, still holds 70% of its shares in physical form. Out of the total 18.4 million outstanding shares as on December 2009, the company has still not dematerialised around 12.9 million or about 70% of its shares. As of end-December, Interlink has only 5.48 million shares in dematerialised form.

Meanwhile, an assortment of interested parties and market punters are talking about the company getting closer to discovering oil. Large physical shares and market rumours are a recipe for price-rigging. Interlink promoters held 61.39% stake in the company as on December 2009. 

In order to eliminate the risks associated with trading in physical securities like delay in transfer, bad delivery, theft, fake and forged shares, market regulator Securities and Exchange Board of India (SEBI) in 1998 had introduced electronic book transfer of share certificates. It also introduced selling of shares in smaller quantities of 500 units or for an amount of Rs25,000 to help investors to liquidate their holdings easily.

According to some experts, since Interlink was listed on the Bombay Stock Exchange in 1994, the SEBI orders on demat may not be applicable to the company, or the company may not fall under the regulator’s policy reforms initiated in 1998.

This raises another question, has the time come to bring the companies listed before 1998 under the new reforms? Reportedly, for Interlink, the minimum lot size of 100 shares is available only in demat form forcing small investors who wish to buy less shares to take the delivery in physical form.

Interlink officials were not immediately available for comments.

“Earlier the population of depository participant (DP) account-holders was less. Post the 2005 rally, many people started opening DP accounts. It (Interlink) is not a fancy stock. There are many companies which hold a majority of their shares in physical form. It takes two-three months to dematerialise stocks, which makes it a tedious process. It is surprising to know that majority of Interlink’s shares are held in physical form,” said Chandrashekhar Layane, vice president, Fair Wealth Financial Services.

“Sometimes, shareholders don’t wish to convert their shares into demat form because of the high charges associated with this process,” said an analyst with a leading brokerage firm.

Dematerialisation of shares ensures faster payment on sale of shares, no stamp duty is paid on transfer of shares and there is no fear of loss, theft, mutilation or forgery of share certificates.

“All new public issues which have an issue size of Rs10 crore and more have to be issued in demat form. SEBI doesn’t say that all shares should be held in demat form. An individual can choose to have shares in physical form,” said a top official from an exchange.

Interlink stock trades in a ‘T Group’ category on the Bombay Stock Exchange (BSE) and closed at Rs35.15 in the last trading session. The company has been incurring net losses since December 2007. It posted a net loss of Rs0.15 crore in the December quarter of 2007, Rs0.63 crore in December 2008 and a net loss of Rs10,000 for the December quarter ended 2009.

In its announcement to the BSE on 16th February, Interlink said that it is allotting a preferential issue of 6.5 million shares at Rs23 each to non-promoter foreign companies which would increase its share capital to Rs30 crore from Rs19 crore.

Despite a majority of its shares being in physical form, Hemant K Gupta, a private investor, had recommended buying the stock in an article in a market tip-sheet called Informed Investor.

According to Mr Gupta, IPL’s market capitalisation is just Rs66 crore as against the Rs4,200 crore market capitalisation of Hindustan Oil Exploration (HOEL).

Mr Gupta argues, “IPL has rights to develop two oil fields in Gujarat. It has been bought over by JIT SUN of Singapore, an investment arm of Zurong Group.

(The) new promoters are a well-known group in oil asset management and have clients like Exxon and Chevron in (the) West and China Petroleum in the East. Oil fields of IPL are adjacent to HOEC and have potential of 12,000 BOPD from each block which will be significantly higher than HOEL.” Well, this may come true. But what will certainly help him and the promoters is the fact that there are few demat shares of Interlink.

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    High food inflation data and weak Asian markets weighed on Indian bourses

    Indian markets slumped during the day on the back of weak Asian bourses and profit-booking, and on concerns that rising food inflation may force the Indian central bank to push up rates. The Sensex declined 101 points from the previous day’s close, finally ending the day at 16,328, while the Nifty closed at 4,888, down 26 points. However, the market is expected to remain volatile in the near term as traders roll over positions from February 2010 derivatives contracts to March 2010 contracts ahead of the expiry of the near-month February 2010 contracts on Thursday, 25 February 2010. Tomorrow, we expect the markets to remain in positive territory.

    At 12:00 hrs IST, the Sensex was trading at 16,392, down 37 points from the previous day’s close. At 14:00 hrs IST, the index was trading 139 points down from the previous day’s close.

    At the end of the day, Kisan Mouldings zoomed 6% after the company acquired a new manufacturing unit at Jaipur.

    Bharat PetroResources (BPRL), a wholly-owned subsidiary of Bharat Petroleum Corporation, said that Anadarko Petroleum Corporation, US, the operator of the exploration block in Rovuma Basin, Area 1, offshore Mozambique, has announced that the exploration well, Windjammer, which is currently being drilled in the acreage, has reached an intermediate casing point and encountered more than 145 net metres of natural gas pay in multiple high-quality reservoir sands with a gross column of more than 365 meters. BPCL shot up 5%.

    During the day, fertiliser stocks witnessed buying interest after the government approved 10% hike in urea prices. The Cabinet also approved the decontrol of fertiliser prices and said that the fertiliser subsidy would go directly to farmers. Chambal Fertilisers was up 3%, Coromandel Industries was up 4% and Zuari Industries was up 5%.

    Reliance Industries Limited (RIL) fell 3% following yesterday’s reports that the government has demanded another $2.7 million from RIL towards royalty and profit petroleum payments on gas produced from the Krishna-Godavari basin.

    Axis Bank surged 3% on reports the bank has sought the government’s permission to set up a subsidiary in the UK.

    Jet Airways India rose 1% on reports that the company plans to sell land in Bandra Kurla Complex, Mumbai, to Godrej Properties.

    Dishman Pharmaceuticals & Chemicals gained 1%, after the company formed a strategic partnership with California-based biotech firm, Codexis Inc.

    Suzlon Energy has won an order from L&T Infrastructure Development Projects Ltd, to set up, operate and maintain an 8.7MW wind energy project. However, the stock was down 3%.

    During trading hours, government data showed that the food price index rose 17.97% for the year through 6 February 2010. The fuel price index rose 9.89% while the primary articles price index rose 16.23% for the year through 6 February 2010. The surge in food inflation for the fourth straight week in early February 2010, heightened worries of headline inflation going past official forecasts and increasing the chance of the Reserve Bank of India (RBI) pushing up rates.

    During the day, Asia’s key benchmark indices in Indonesia, Hong Kong, Singapore and South Korea were down between 0.3%-1.24%, while Japan’s index rose 0.28%. As per media reports, the Bank of Japan kept its key interest rate on hold at 0.1% and didn’t issue any new policy initiatives, though it repeated its pledge to do all it can to pull Japan out of deflation.

    On Wednesday, 17 February 2010, the Dow Jones Industrial Average was up 41 points while the S&P 500 and the Nasdaq Composite were up 5 points and 12 points respectively. As per reports, the Federal Reserve raised its 2010 US GDP forecast to 3.2% from 3%.

    In premarket trading, the Dow was trading 2 points lower.

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