SEBI panel for recovering gains made by IPO scamsters

The Justice Wadhwa committee, set up by market regulator SEBI to investigate irregularities in IPOs floated during 2003-2005, has suggested the possibility of recovering the amounts and distributing it among the deprived applicants

Scamsters gained Rs 95.69 crore by rigging initial public offerings (IPOs) between 2003 and 2005, a regulatory panel has found. It has suggested recovering this amount and distributing it among affected investors.

The value of frozen shares of these scamsters in the depositories worked out to be Rs147.85 crore and the balance in their bank accounts frozen by the Central Bureau of Investigation (CBI) stands at Rs1.20 crore as on 31 October 2007, the Justice Wadhwa Committee said.

The committee, set up by market regulator Securities and Exchange Board of India (SEBI) to investigate irregularities in IPOs floated during 2003-2005, suggested the possibility of recovering this amount and distributing it among the deprived applicants.

"The quantum of unjust gains based on allotment to accounts is approximately Rs95.69 crore. The value of the holdings in the frozen demat accounts in both National Securities Depository Ltd (NSDL) and Central Depository Services (India) Ltd (CDSL) of the key operators and financiers as on 31 October 2007 works out to be about Rs17.85 crore. The balance in the bank accounts of operators/financiers frozen by CBI is Rs1.20 crore," said the report.

The scam in 21 IPOs, including Jet Airways, NTPC, IDFC, TCS, Yes Bank, Gokaldas Exports, ILFS Investsmart, Suzlon Energy and Shopper’s Stop, related to alleged cornering of the shares reserved for retail investors by scamsters through opening of fictitious accounts.

For the purpose of payment to the deprived retail applicants, the amount which is the difference of closing price of shares on the first day of listing/trading at NSE and the IPO issue price will be considered, said the committee.

"These applicants will not be entitled for the market price movements subsequent to the listing," said the report of the committee, headed by former Supreme Court Judge DP Wadhwa.

The committee recommended that those who did not get any shares should be reallocated money equally from the recovered amount, till they each receive the gains from minimum shares allotted to the lowest category in the IPO.

“Once that number is reached, any left-over money shall spill over" and reallocated to the partly successful applicants, the committee said.

Former finance minister P Chidambaram had assured the Lok Sabha that steps would be taken to reallocate shares to persons who had lost out on allocation of shares on account of the IPO scam.

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    SBI says no interest rate hike likely in six months

    Despite inflationary pressure, there will be no increase in the interest rate on loans in the next six months because of surplus liquidity in the market and rising deposits

    The country's largest lender, State Bank of India (SBI), has said that there will be no hike in lending rates in the next six months as there is surplus liquidity in the market, reports PTI.

    Despite inflationary pressure, there will be no increase in the interest rate on loans in the next six months because of surplus liquidity in the market and rising deposits, SBI chairman OP Bhatt told reporters.

    Mr Bhatt said that there is a good amount of liquidity in the market and credit offtake is slowly picking up.

    Referring to the ongoing merger process of SBI associate banks, Mr Bhatt said that SBI is a major stakeholder in SBI associate banks like State Bank of Saurashtra and State Bank of Indore.

    "In fact, we did not have less than 75% stake in any of these banks and owned 100% in State Bank of Hyderabad and State Bank of Patiala which were with us for the last 50 to 60 years," he said.

    State Bank of Saurashtra has already merged while the process was on with regard to State Bank of Indore, Mr Bhatt said.

    The merger would improve SBI in terms of efficiency in operation, release of capital, economies of scale and avoiding waste and duplication. "More importantly, we are getting good quality people," he said.

    However, the merger process, he said, should not be viewed in terms of a benefit as it was a process of restructuring within a family.

    The SBI chairman did not think that the Indian economy had been affected by the recession. "The recession did not hit India the way it had affected European countries last year. There was only a slowdown in the growth rate which came down to 7% from 9%," he said.

    Replying to a question on withdrawal of stimulus package by the government in the prevailing situation, Mr Bhatt said that the bailout package should not be taken back but 'phased out'.
    Mr Bhatt claimed that the 8% interest on home loans announced by the SBI had provided market stability.

    Buyers have started coming back and the cement and steel sectors have started improving, he said and also ruled out any further cut in the interest rate. In fact, SBI has forced other banks to follow suit, he added.

    About SBI's tie-up with an Australian company to enter the general insurance sector, Mr Bhatt described it as “a meeting of minds” as it was looking for a partner for the purpose.

    Mr Bhatt said, "The Australian company has the best technology, risk and product management (tools), whereas we have a large captive clientele to tap," he said.

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    Power tariffs in open market crash to Rs2-Rs5 per unit

    Power tariffs in the open market have crashed to Rs2-Rs5 per unit in December from Rs12-Rs14 per unit in June 2009. Seasonal fluctuation leading to low demand is being stated as the reason for these low tariffs

    Riding on high merchant power tariffs, a number of power companies have planned huge capacity expansions to cater to merchant power trading. The recent drop in merchant power tariffs, however, has shown that prospects are highly seasonal in this sector.

    Power tariffs have fallen to Rs2 to Rs5 in December from a high of Rs12 to Rs14 per unit in June 2009. Merchant power tariffs have been on a downturn since September. They were quoted in the range of Rs6 to Rs8 by the end of September and the beginning of October 2009. In November they fell to Rs2 to Rs4 per unit, with power traded during non-peak hours falling to below Rs2 in mid-December 2009. During the last week of December, day-ahead market prices for merchant power on the Indian Energy Exchange ranged between below Rs2 per unit to Rs5 per unit.

    Analysts believe that this drop is a seasonal phenomenon as power demand goes down in the winter. The situation will change from March onwards, with the onset of summer, they said.

    Earlier, Moneylife had reported on how the volume of power trading over the past three years has jumped at a 22% compounded annual growth rate (CAGR) to 21 billion kilowatt hour (kWh) in 2008. These units were also traded at comparatively high tariffs—557 million units were traded between Rs8-Rs10 per unit (as against nil in 2007) and 5,292 million units were traded for Rs6-Rs8 per unit (as against 461 million units in 2007).

    These high prices enjoyed in merchant power trading are due to the liberty that merchant power-generating companies have to trade power at any price during periods of peak shortage. The cost of electricity generation ranges between Rs1.75 per unit for coal-based power projects to Rs3.50 per unit for thermal power plants. Selling at Rs5 and above ensures super profits. At times of peak demand, power trading can fetch as much as Rs14 per unit, as reported in June 2009.

    However, merchant power trading also has a downturn. Such high tariffs could be enjoyed only during the peak demand season; the prices could fall well below Rs5 per unit during off-peak demand seasons like winter—as in November 2009 and December 2009. As companies will not be able to cover their fixed costs and thus incur losses, companies trade power even at lower tariffs.

    Lured by high merchant power tariffs, a number of companies have set aside some share of their total power production for merchant power sale. According to a report by broking firm Enam Securities Pvt Ltd, new power projects of 62 gigawatts (GW) will come up between 2011 and 2014. Of this, 13.3GW will come from merchant power projects.

    Recently, Shree Cement Ltd announced plans to set up a 300 megawatt (MW) merchant power capacity at Beawar in Rajasthan. The power generated from this plant will be sold in the open market and not used for captive purposes.

    Cement major Shree Cements has planned merchant power plants; drug manufacturer Torrent Ltd also plans similar expansions. Torrent is planning power projects of 3,647MW, 40% of which will be sold as merchant power. Adani’s 6,600MW power project includes 1,848MW for merchant power.

    Huge power capacity is also expected from Jindal Steel & Power Ltd, which plans to ramp up capacity for merchant power from the current 4,000MW to 11GW by FY12 and 30GW by FY17.

    Sterlite Industries Ltd also plans to set up a 2,400MW power project through Sterlite Energy, which is its 100% subsidiary, to gain space in the merchant power segment. Sterlite is planning power projects for a total of 4,400MW, out of which 40% would be merchant power projects.

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