At least 5.7 million investors, or nearly half the demat holders in National Securities Depository Ltd. (NSDL), the country’s largest depository, are stuck in companies suspended by the Bombay Stock Exchange (BSE).
The exchange has suspended 1,405 companies for non-compliance with the listing agreement and 171 more over what it calls ‘procedural issues’.
An analysis of these companies shows at least 278, or a little under a fifth of these suspended companies, have at least 5,000 shareholders each.
|HANGING IN THE BALANCE
Suspended companies with large number of shareholders
|Company Name||Date of
|Consortex Karl Doelitzch (India)||Sep 11, ‘06||400,641|
|Oswal Agro Mills||Mar 13, ’03||243,434|
|GSAL (India)||Feb 27, ‘99||217,935|
|Ispat Profiles India||Feb 17, ‘03||145,081|
|NEPC Agro Foods||Sep 10, ‘01||135,570|
Of these, 170 have over 10,000 shareholders. Consortex Karl Doelizch (India) Ltd, a company suspended by BSE in 2006, has the largest number of shareholders at a little over 400,000. Oswal Agro Mills and GSAL (India) have more than 200,000 shareholders each. Three more suspended companies have at least 100,000 shareholders.
In a study conducted a few months back on 789 of the total 1,325 vanishing companies for which data was available, CNI Research found the market capitalisation of these companies on the date of suspension was Rs 60,538 crore.
Of this, public money (including that of retail investors) amounted to Rs 57,563 crore (over 95 per cent), and institutions, mostly government-led stood at Rs 145 crore while the rest, Rs 2,975 crore (4.91 per cent), was that of the promoters.
Many of these shareholders have held on to shares in the hope that the companies could get relisted or get acquired by unlisted firms who want to enter the market. These were the only hope for the investors to get their money back.
Suspended companies have periodically relisted on BSE and have surprised investors with heavy spurt on listing day. In 2008, KGN Industries, a little known Gujarat-based company spurted to Rs 55,000.
In early 2009, when the market recovered from the Lehman crisis, some 16 companies relisted between April and June. Of these, nine stocks witnessed gain between 200 and 3,000 per cent on relisting day, according to a BS study.
Similarly, at least 25 stocks relisted on the exchange in early 2010, with many of them spurting on listing day. Since there is no circuit filter to cap gains on the stocks on listing day, operators used to jack up prices of these stocks, allowing exit for some investors.
However, these hopes have been dashed by the recent rule changes by the Securities and Exchange Board of India (Sebi), which have made relisting of such companies very difficult.
In May, the regulator announced new norms for small companies seeking relisting. These rules were mended specifically for companies wanting to migrate from the regional stock exchanges to BSE and for those who have been suspended for non-compliance of listing agreements for over a year.
These companies will now be able to relist only if they raise their minimum paid-up capital from the present Rs 3 crore to at least Rs 10 crore. And, Sebi has also stipulated a minimum networth criterion of Rs 50 crore in three consecutive financial years.
Besides, also made a criterion is distributable profit in terms of Section 205 of the Companies Act, 1956, for at least three out of five immediately preceding financial years, on the basis of audited financial results with the last financial year reporting profit (provided the extraordinary income is not considered for calculating distributable profit).
These norms have made it near impossible for a suspended company to relist, say brokers. “The idea is to make listing tough in the main platform and move companies to the SME platform. But, in the proposed SME exchange, each company has to be underwritten by the merchant banker. Who will come forward to underwrite and take responsibility of these companies?” asked a broker who did not want to be identified. He says these companies could be accommodated in the main platform only.
Experts suggest the best safety device is a careful man. Sonam H Udasi, head of research, IDBI Capital Market Services said, “Investors should not blindly go after stocks just because it’s recommended by some broker. They should do their own research and be sure of the fundamentals to avoid such events.” Udasi feels investors can find a lot of value in large cap and mid cap space itself.