Disclosures that confuse and conceal

Our lawmakers have chosen to have a disclosure-based regime for the smooth running of the securities market. Therefore, companies and institutions are required to inform all material information through various filings to the stock exchanges. The rules governing filings, though a little outdated, are aimed at ensuring that there is no asymmetry of information between one set of investors and others. I say outdated because in this era of Big Data, the rules here allow as many as 14 days for an institution/insiders to inform their activity in the stock. Most institutions have systems that can do this in 14 minutes, if not lesser.

While the punctuality is important, a more critical component is the clarity of these filings. Five days after it bailed out the National Aluminium (Nalco) offer, Life Insurance Corporation of India (LIC) told the exchanges its stake in the miner has gone up from five per cent to a little over seven per cent. See filing here: http://bit.ly/126hPNJ

This led to the assumption that LIC had bought some 52.48 million shares in the offer for sale held on March 15. Thus, it was held that LIC bought roughly a third of the 156.93 million Nalco shares sold by the government.

News reports and analyses have been generated and consumed based on this assumption. But a finer reading of the filing and tallying with company data shows that LIC might have bought much more.

The format of a typical Substantial Acquisition of Shares and Takeovers (SAST) filing is such that it gives the holding of the institution prior to the transaction, details of acquisition and the post-transaction holding. The LIC filing shows a pre-transaction holding of 129.88 (5.02 per cent) million shares, which became 182.36 million (7.07 per cent) post the transaction. The catch comes in the date of acquisition. Here, LIC says the transaction occurred over a seven-year period between 21.11.2006 and 15.03.2013. You must be kidding.

No, this means the two per cent increase is the net impact of several hundreds, if not millions, of transactions the behemoth conducted in the counter. So, I am not being given the correct number of purchase in the OFS. So, I go to the company's shareholding pattern of December 31, 2012.

Gotcha!!! LIC had only 83.81million share (3.25 per cent), which means it bought a lot more in the OFS, 98.55 million shares (3.82 per cent) to be precise. Thus, LIC bought 62.8 per cent of the Nalco OFS, which brings us to some difficult questions. Is the insurer deliberately making such convoluted filings to understate its purchases in the OFS? If not, why has it not attempted to clear the misconception caused by this wide misreporting?

It can attempt to hide itself in a provision which says the institution holding five per cent or more has to report its holding if its increases or decreases by two per cent. If so, the filing should have said the acquisition was "through market purchases including offer for sale".

But the filing, you might not have missed, suggested entire acquisition between 21.11.2006 and 15.03.2013 was through "offer for sale".

If this was just a mistake, then the largest institutional investor has to invest more in its compliance department. If it was not, then I am very scared.