In the wake of American corporate scandals, Indian auditors seemed to have turned more diligent. A spate of qualifications to many corporate accounts suggested a big improvement in the quality of audits. But we have a long way to go on the road of good corporate ethics before Indian owner-managers stop diddling other shareholders of their rightful dues. A vigilant reader cites some shocking examples of companies that have cooked the books or manipulated their stocks to make a fast buck. For instance, there is the agro foods company whose scrip began to rise on rumours of a possible takeover. Instead, it announced a big loss and investors realised that the promoters holding had dropped a substantial 12 per cent. Did they manipulate prices to dump their shares at a high price? Another trend is that of companies that have sold part of their business making the extra cash vanish from the books. When Glaxo sold its food business to Heinz, it distributed the entire Rs 175 crore to shareholders as a special dividend. But many Indian companies obviously don’t believe in sharing the goodies. For instance, company X sold two core sector divisions and quickly acquired a set of ‘brands’; but investors allege that it paid inflated prices to take cash out of the company. Another company that was associated with scamster Ketan Parekh sold one of its brands for Rs 70 crore but most of the money has been removed from the books. The biggest chunk of it was written off as bad debts and administrative expenses suddenly shot up a hefty Rs 20 crore. A third company collected Rs 80 crore by selling its stake in a third company and the money has again vanished from the books. Maybe this is additional fodder for the Naresh Chandra Committee to chew over? Closing shop It is just as well that Arun Shourie has closed the shop for public sector disinvestment. We learn that at least three more hotels that have been recently divested are looking out for new buyers – and one of them hasn’t even paid for his purchase yet. Those looking out for a buyer include a controversial acquisition that was funded almost entirely by banks and began to default within a couple months after the acquisition. There is talk that the new owner has already finalised a sale that is being kept under wraps to avoid a controversy during the parliament session. Two recently divested Delhi hotels, one of which had hogged the front pages in a macabre controversy may also be on the block. Those in the business say that multinational hotel chains may show some interest, now that occupancy rates in the capital have improved and there are slight signals of a turnaround. Not in danger A recent newspaper report about wide fluctuations in the National Stock Exchange’s (NSE) settlement guarantee fund (SGF) has caused a flutter among stockbrokers. The report suggested that a steady decline in the Settlement Guarantee Fund of the NSE, from a high of Rs 2,884 crores in March 2001, to just Rs 1,587 crore in October 2002, indicated the bourse was probably covering up some major defaults. Agitated investors have written in to bay for NSE’s blood. Some fact checking shows that there is hardly any change. In fact, the SGF for all of 2002 has averaged Rs 2400 crore at the end of each month. The difference is that the growing derivatives volumes have seen a switch in SGF collections from the cash segments to the derivatives segments. As for the Rs 400 odd crore decline from March 2001, it also easily explained. The introduction of rolling settlement has reduced the cumulative outstanding position of brokers, allowing them to withdraw additional capital deposited with the SGF to enhance their trading limits. Although the capital market is notorious for its scams, sometimes it is difficult to find one behind every fluctuating number. Printing ink For years there have been these nagging rumours that India pays far too much for the ink to print its high security currency notes and that counterfeiters of our currency also access the same suppliers to obtain comparable quality. One reason for such worries is that the supply is dominated by foreign companies because India’s own manufacturing plant at Dewas seems unable or incapable of meeting our needs. Although the purchase is through a proper global tender, the elimination process narrows the bids down to a chosen few. Since the business is worth a few thousand crores or rupees, many insist that its time to re-examine the business to make it safer and transparent. Author’s Email
