THE CORPORATE VIAGRA

THE CORPORATE VIAGRA:

12.01: Floating Russian Rouble, debacles in Japanese Yen, likelihood of China devaluing Yuan, US Dollar becoming dearer and dearer for Indian Rupee, US sanctions, various scams ineffective budget of the Bharathiya Janata Party (BJP) led Government of India, and infighting of politicians have brought down the Sensex on Indian Stock Exchanges and consequently the Indian Corporate Sector is badly in need of a Viagra like pill to pep it up. The SEBI, RBI, and others concerned have therefore, during the year 1998 made the following efforts to boost the Indian Corporate Sector and revive its bearish securities markets.

12.01 (a) To support the declining ADR/GDR markets, the Indian Finance Ministry on August 17, 1998 eased the guidelines for ADRs/GDRs by extending bonus and rights entitlements available to domestic investors also to ADR/GDR holders. Such issuance would however be subject to necessary approvals. They would also be permitted in case of mergers and amalgamation completed under the supervision of the High Courts. This would mean that if ordinary shareholders of one company become entitled to shares of another company because of genuine reorganizations duly approved by the High Court, then the GDR/ADR holders of the first company will also be entitled to the shares of the second company.

12.01 (b) The Bombay Stock Exchange (BSE) governing board has laid down procedures for squaring up bad deliveries in scrips where trading has been suspended indefinitely or in those that have been delisted.

12.01 (c) The Association of Mutual Funds in India (AMFI) who works with SEBI to improve the standards of disclosure, valuation and compliance for the betterment of the Industries and the benefit of the Investors, has finalized standardised valuation norms for untraded debt instruments in a Mutual Fund Portfolio. AMFI will next formulate fair valuation norms for illiquid or thinly - traded equity shares. In order to bring standardisation AMFI will also in the near future look at the valuation of non-performing assets.

12.01 (d) SEBI has held out a "Buyer Beware" sign for investors who are lured by high risk plantation scheme by clarifying that
(1) no plantation company has been given any registration by SEBI
(2) SEBI has limited information about the schemes floated by plantation companies and is not in a position to give any advise on their financial stability. The audit of many of the plantation companies have revealed an unsatisfactory state of their financial health
(3) there is a very high risk perception for the investors contemplating investments inthe schemes of plantation companies (4) SEBI is initiating action in respect of advertisement of plantation companies offering attractive returns and promises.

12.01 (e) SEBI has issued guidelines for negotiated deals which are transactions of sale or purchase with a minimum value of Rs.25,00,000/- or a minimum value of (number of shares traded) 10,000 shares. According to the guidelines the deal should not be executed at a price not formed through the Stock Exchange price and order matching mechanism. Such deals are required to be reported to the Stock Exchange's within 15 minutes of negotiation. The parties should disclose the name of the securities, price and quantity at which the deal has taken place and the name on or identity of the members involved. All deals should be delivery based and can be cancelled only in special cases with proper approvals of the Stock Exchange. They can be settled either through the clearing house of the Stock Exchange or bilaterally as prescribed by the concerned exchange. They will not be covered by the trade guarantee funds of the exchange and any dispute arising out of these deals would be resolved through the Arbitration Mechanism of the exchange.

12.01 (f) The Government of India has decided to shed away the public units that are loss making and incapable of reviving and implement its disinvestment programme vigorously.

12.01 (g) To restructure a company's capital, amendments to the Companies Act are suggested and thought of seriously by allowing freedom to Indian Companies to buy-back their shares. It would allow promoters to increase their holdings without bringing in capital and prevent hostile take overs. In order to return surplus cash to shareholders, to increase the underlying share value, to support the share price during the periods of temporary weakness and to achieve and maintain a target capital structure provisions in the Companies Bill, 1997 have been introduced. The types of buy-back suggested are ones which are only to extinguish shares. The buy-back should be from the existing shareholders on a proportionate basis or from the secondary market or from a specific class of shareholders provided they are not allowed to vote on the special resolution or from odd lots or from stock option schemes. The post buy back debt-equity ratio is suggested to be not more than 2:1 and it is suggested that the company should not be allowed to issue fresh shares for 12 months after completion of buy-back. This ban includes rights issues but excludes bonus or conversion of previous stock upon the warrants, preference shares and debentures. A solvency declaration of the board of directors is also sought for the buy-back certifying that the company will not be insolvent within a period of a year after the conclusion of the buy back. For buy back it is suggested in the Companies Bill, 1997 that prior approval of the shareholders through special resolution should be obtained and shareholders should be informed of the amount allocated for buy back, they should also be informed about the funding from free reserves and share premium account, and the necessity of buy-back and the class of shares to be brought back. It is also suggested in the Bill that the time period for concluding buy-back should be up to a period of maximum 15 months. With the introduction of this provisions of buy-back market sentiment is expected to improve.

12.01 (h) Many Indian Companies have shown interest in being listed on NASDAQ. Majority of them are those that sell their products in the US. In order to encourage such companies several rules and regulations of FERA and other relevant Acts have been relaxed by the Indian Government.

12.01 (I) A committee constituted by SEBI to examine the issue of Employees Stock Option (ESOP) has suggested that companies be given freedom to issue not only ESOPs but also Incentive Stock Option (ISOP). ISOPs are a new concept for the Indian Industry. The pricing of ESOPs and ISOPs could be concessional or market linked. Currently in India ESOPs pricing is subject to SEBI's guidelines on preferential pricing and they can be issued only at 6 month average quoted price of the scrip.

12.01 (j) The Indian Securities Markets have made significant head ways in evaluation of Mutual Funds, introducing new roles for Development Banks, evaluation of infrastructure organization, by dematerializing the shares and securities, intending to introduce derivatives, etc.

12.02: The Indian Corporate Sector despite bearish trends today and its Sensex being at low ebb has certainly entered the arena of globalization. The global investors have now realised that they cannot avoid exposure to the Indian Capital Markets which is one of the emerging markets. It would be too harsh to write the Indian Securities Markets off only on account of its present momentary situation. Paradoxically though on the face of it, multinational companies are sleeping on the charts of the Indian Securities Markets and it would seem that their Chief Executive Officers have their work cut out. But there are times when figures lie and it camouflages a strategy. Over the few years, India is likely to be a superpower. From hawking shares under a Banyan tree to shouting matches in the trading ring, the Indian Capital Market has now entered the hush of screen based trading.

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