news Wednesday, February 25, 2015 - 05:30

Chitra Subramaniam| The News Minute| October 14, 2014| 5.00 pm IST

Sucheta Dalal is a among a handful of "go to" people in the Indian media on banking and financial issues as well as nything to do with the stock markets. Most known for investigating the Harshad Mehta case in 1992 - the country's biggest financial scandal then - she has been on several government of India committees including the Market Advisory Committee of the Securities and Exchange Board of India (SEBI). Three decades of journalism and she is currently Consulting Editor for MoneyLIFE (www.moneylife.in). 

She spoke to Chitra Subramaniam, Editor-in-Chief of The News Minute (TNM) on the SEBI's decision this week to crack the whip on one of the country's best known real-estate companies - DLF Limited - for false and incomplete information. Excerpts

Sucheta Dalalimg

How do you explain the SEBI cracking the whip on DLF now?

The timing is indeed interesting. The investigation pertains to disclosures that ought to have been made in its controversial Initial Public Offering (IPO) for re-listing its shares in 2007. Considering how controversial the IPO was, one wonders how this escaped SEBI’s attention then. Check this for details.

Importantly, once the complaint was filed, why did the investigation drag on for over five years? In the capital market, such long delays only hurt investors. There is bound to be speculation about whether the regulator makes haste when the government of the day is not seen to be favourably disposed to a company.

What does it mean in actual terms for six DLF executives to be barred from investing in markets?

The term is ‘accessing’ the capital market. It means that the company cannot raise money from the capital markets and its executives cannot buy or transact in shares. It is however not clear if they would also be stopped from selling their shares or the company if they should wish to do so. 

Barring DLF and its promoters from the capital market needlessly punishes investors who are not part of the management. The shares lose value and it also means that the company’s growth prospects may be affected over the next three years. Why should the average retail investors suffer?

The failure to make proper disclosures is the fault of the promoter family along with their investment bankers. In fact, it is the lead manager who signs off on the accuracy of disclosures in the prospectus. The action should have been in the form of steep monetary penalty or asking them to step down from management. If SEBI could initiate such action against the Jignesh Shah group, then why not DLF? Why punish investors for lapses of a specific family that controlled over 90% of the shares before it went public for the second time in five years! 

What do you mean by DLF’s past record?

Well, this is a company that listed in a stock market boom, decided to buy back its shares by steadily increasing shareholding (in violation of the law) to 90%, paid a small penalty of Rs 5 lakhs and delisted. It then decide to hype up its ‘land bank’ and relist its shares in less than three years. This too involved a whole lot of dubious maneouvers to deny benefits to around 1800 retail investors who had hung on to their shares even when the company was delisted. Read more here.

DLF raised $2.3 billion in 2007 as the first cracks were showing in the financial crisis. It was then India's biggest market debut. What next?

As I said earlier, it was a controversial second coming for DLF. It had already been listed and de-listed once. This time it seems set to go into some sort of ‘suspended animation’, since the promoters cannot access the capital market. My understanding is that it cannot even access the market to buy back shares from investors and delist the company for a second time. However, there is no curb on its borrowing. So it remains to be seen what the company will do. One thing is sure; it will spend large sums of money on litigation, which is also come from shareholders’ funds.

With your knowledge of banking and financial services, is it normal for the SEBI to take seven years to read one IPO document?

No, and it gets worse. The shares were allowed to be listed. The investigation was about failure to make proper disclosures in the offer document. The very objective of setting up independent regulators with domain expertise (capital markets, insurance, pensions, telecom and electricity) was to speed-up decisions. But each of these regulators have become large, high-cost bureaucracies, focussed on their power and perks and whose actions are always with an eye to pleasing the government in power.

Do you see this as a start of a clean up of the financial markets in India - a beginning?

No

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