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No beating about the bush.
The company was demerged 10 months back though it is yet to be listed; SEBI approved the listing after eight months but now BSE is yet to give its nod
The dwindling population of retail investors in India is time and again made to suffer due to wrongdoing by companies. Often, buybacks, delisting & demergers are announced, resulting in a sudden spurt in the share price and then the company defers from actually going through with the announcement, leaving small-time investors mired in losses.
Take the case of Five X Finance and Investment Limited, a demerged arm of Octant Industries, (formerly listed as ‘Octant Interactive’ on the BSE, or Bombay Stock Exchange), which has not yet been listed for more than 10 months now.
Octant Interactive Technologies Ltd demerged its financial division business and vested in Five X Finance and Investment Ltd, with a whopping 80% of its capital as per the demerger agreement, on 7 December 2010. However, the company has still not received approval from the BSE. This has left retail investors in the lurch with a majority of their capital stuck in the unlisted firm.
Moneylife had earlier reported on how the delay in listing of Five X, due to delay in approval by the Securities and Exchange Board of India (SEBI), had left investors trapped in the unlisted company. (See: Post de-merger, Octant Interactive shareholders still await listing of spun-off business ).
Now after eight months, the market regulator has given listing approval to the company. But this time it is the BSE which is yet to give its nod.
In a filing with the BSE, dated 2 September 2011, Octant Industries said,
“The demerged Undertaking/Resulting Company ‘Five X Finance and Investment Ltd’ has revived the approval under 19(2) (b) SC (R) Rules, 1957 from SEBI for listing the company with stock exchanges.”
It added, “Post the approval from SEBI, the company is under the process of obtaining listing approvals with the concerned exchange (BSE).”
Here again, retail investors are at the receiving end of the deal. “Now they are waiting for permission from BSE, but in the past 45 days there is no update or sign from the company regarding permission from the BSE. And we (investors) don’t have any other way as the company is not responding to email from investors as usual, and there is no other way we can contact them and get an update about the listing procedure. It is really a horrible experience as our entire money is stuck in Five X as the ratio was 80% to 20%,” complained an investor who had invested in Five X, who spoke to Moneylife preferring anonymity.
As per the Scheme of Agreement, post the demerger, Octant Interactive Technologies Ltd’s shareholders got 4 shares in Five X Finance and Investment for every 5 shares in Octant Interactive which they held. For every 5 shares of Octant Interactive, the equity holder was to receive 1 share of Octant Industries, each share with face value of Rs10. In other words, the shareholders of Octant Interactive were given 80% of their current holding in Five X Finance and 20% in Octant Industries. This effectively reduced shareholder stake in Octant Industries.
Industry experts say that investors are suffering with the majority of their capital stuck in unlisted firms solely due to delay in SEBI and stock exchange approval.
Interestingly, Octant Industries, which got only 20% capital, was successfully listed on 7 February 2011.
Five X says that it is awaiting BSE’s approval. When asked about the investors’ money, a company official told Moneylife, “We can’t do anything unless we get listing approval from the BSE.”
An email query to BSE did not solicit any reply till the time of publishing this story.
The regulatory framework in emerging markets is either bad or nonexistent. In the World Bank’s annual report on the ease of doing business the highest BRIC is China which barely makes it into the top half of countries. Brazil is the only BRIC that makes it into the top half of Transparency International’s corruption index
We often expect leaders, professionals, and experts to know and understand the facts. The truth as to what is and what isn’t. Otherwise how could we expect them to make wise decisions? It is then both disturbing and profoundly unsettling to realize that they just accept the most common of assumptions as reality without question.
For example, Muhtar Kent, Coke’s chief executive spoke to the Financial Times about China. According to the article Mr Kent said that said “in many respects” it was easier doing business in China, which he likened to a well-managed company. “You have a one-stop-shop in terms of the Chinese foreign investment agency and local governments are fighting for investment with each other.” Fascinating.
What seems to have escaped Mr Kent is a process known to every con artist. In order to convince your mark to open their wallet, you have to gain their trust. You can do this by letting them win a few hands, by making it easy to play the game or promising large quick rewards. What the mark does not understand is that the game is not being played by the normal rules, but by ones that suit the con artist.
Mr Kent feels certain that Coke will make money in China because it is easy to do business. This has been true. In first half of this year, Coke sold more than one billion cases of its products in China which is double its sales five years ago. From Mr Kent’s perspective this market has great potential. What he seems to have ignored is that it has great risks.
Mr Kent’s entire product rests on a brand. Cola-flavoured sugar water is not hard to imitate. So without protection for his intellectual property his product becomes a commodity and the margins disappear.
In China they pirate intellectual property on a massive scale. Not just high-end Gucci bags, but just about anything that has a brand is being counterfeited. These include Michelin tyres, John Deere combines, Bubble Wrap, Tiffany jewellery, Nike and Timberland footwear, Marlboro cigarettes, Viagra, Colgate toothpaste, Kit Kat chocolates, Tide detergent, GM, Nissan, Ford, Mercedes car parts, mobile telephones, toys, clothing, industrial adhesives and even batteries.
Mr Kent also seems unconcerned about a country that routinely slanders foreign firms. Dell, General Mills, Lipton Teas, Colgate-Palmolive, and Sony all have been targeted. In one case China banned importing foods made by Schweppes, Unilever and Coke itself. These foods were tainted by an ingredient produced by a Chinese company that was only identified by foreigners.
It is not just Mr Kent who is making the mistake, but US Federal Reserve Chairman Ben Bernanke as well. Mr Bernanke suggested that the United States could learn from emerging markets. He pointed out that emerging market growth shows “the importance of disciplined fiscal policies, the benefits of open trade, the need to encourage private capital formation while undertaking necessary public investments, the high returns to education and to promoting technological advances, and the importance of a regulatory framework that encourages entrepreneurship and innovation while maintaining financial stability.” The question is exactly which emerging market did he have in mind?
The regulatory framework in emerging markets is either bad or nonexistent. In the World Bank’s annual report on the ease of doing business the highest BRIC is China which barely makes it into the top half of countries. Brazil is the only BRIC that makes it into the top half of Transparency International’s corruption index.
As to public investment, perhaps only China can be said to make any of those. Brazil has the world’s third-largest road network, but 88% of it is dirt. Traffic is a mess in almost any large city in an emerging market.
As to capital formation and entrepreneurship, senior executives are so unhappy about the Indian government’s painfully slow or inconsistent decision-making that they are focusing their investments on Africa or Latin America. China has consistently starved private firms of capital. Russian prime minister Putin suggested that anyone who starts a new business should be rewarded with a medal for bravery because of their willingness to take on the mass of paper work, poor rules and corrupt bureaucrats.
As to education, India’s vaunted outsourcing industry cannot find enough graduates with sufficient skills. As a percentage of gross domestic product (GDP), China spends less on education than Uganda. The once great Russian education system has been totally corrupted. Anything from school places to university degrees are available for a price.
Both Mr Kent and Mr Bernanke are powerful men. Perhaps what they really admire about some emerging markets is that decisions can be carried out without messy debate. But the point of the debate is to find truth, and that is the one thing that they themselves have ignored. Fortunately for investors, stupidity can be very profitable.
(The writer is president of Emerging Market Strategies and can be contacted at [email protected] or [email protected]).
The quarterly survey across eight cities finds fall in confidence caused by poor global outlook, high domestic interest rates and inflationary concerns. Still, investors expect Sensex to climb to over 20,000 by year end
The Indian Investment Confidence Index (ICI) is at its lowest in two years, due to the combined impact of the global economic slowdown, high domestic interest rates and inflationary concerns, according to a survey conducted by JP Morgan Asset Management across eight cities in July. However, a majority of investors and advisors in India expect the benchmark Sensex to trade between 20,000 and 22,000 by the end of this year.
Interestingly, the retail confidence index although 4.2 points down from the previous quarter, ranked the highest (137.5). The advisor confidence index was a distant second (124.9), whereas corporate confidence was at the lowest (109).
Christopher Spelman, whole-time director and chief executive officer of JP Morgan Asset Management says, "ICI for the current wave has been impacted by a significant fall in the outlook on the global economy, domestic interest rate hikes and inflationary concerns. Despite this negative news flow, the Indian financial fraternity maintains a positive outlook with a majority of investors and advisors expecting the benchmark index to trade between 20,000 and 22,000 by the end of this year. Another interesting finding is that young investors (age 22 to 25 years) appear highly enthusiastic about investing in mutual funds."
ICI, which was launched in August 2009, captures the confidence of retail and corporate investors, and financial advisors on the Indian economic and investment environment on a quarterly basis.
The numbers were calculated on the basis of responses received from 1,623 respondents (retail), 50 corporate treasuries, 269 independent financial advisers (IFAs), 20 banks and 20 national/regional distributors (N/RDs).
Banking and financial services emerged as the most attractive sector for investment among retail investors and advisors. Investors appear to have turned cautious as preserving capital emerged as a popular strategy among 40% of retail investors surveyed. Further, just 40% of investors were likely to turn "somewhat aggressive" about their investment strategy in the coming six months, as compared with 57% in the previous quarter.
In corporate treasuries investment activity showed noticeable decline across all instruments. Money market mutual funds remained the most popular debt instrument. It is interesting to note that 50% of corporate treasuries expect to maintain the current investment level in liquid funds ahead of the Reserve Bank of India's regulation on limiting banks' exposure in liquid funds to 10% (effective from January 2012).
The survey found that IFAs (independent financial advisors) in Mumbai are a despondent lot and their confidence is the lowest this quarter. Easy to understand when one finds that personal networking continues to be the most preferred source of information for investment decision making among retail investors.
Arun Jethmalani, managing director of ValueNotes, the independent market research agency of JP Morgan that conducted the survey, says, "Growing vulnerability of the global economy and uncertainty in the domestic investment environment have taken a toll on investment confidence, dragging the ICI down to its lowest ever. Interestingly, confidence within India Inc. appears to be shaken the most, amidst rising inflationary pressure, poor governance and corruption; even as the advisor community is a little more optimistic about financial investments."