Dressing It Up

You could call it the corporate version of the fancy dress competition played by school children. At any rate the objective is the same -- representing yourself as something totally different from what you actually are. For some time now, The Smart Investor has been carrying periodic pieces on the creative accounting being practised by prominent Indian corporations to pull wool over their common shareholders eyes. Now, we are starting a column -- Watchdog -- which will track accounting and other sleight of hands practised by Indian corporations on their shareholders. The first of the series looks at the Essar group, which is getting so much laudatory press these days.

 

For all its ultra positive image, a scrutiny of the group shows some amazing games being played by the management. Read on.

In theory, public corporations are supposed to take all their decisions with an eye to maximising shareholder value. In real life though, most corporations tend to put the interests of their managements/ promoters above those of general shareholders. Generally though, most corporations and groups also strike a balance so that the shareholder doesnt lose either.

But there are always exceptions. And one notable exception is the Essar group -- which seems to take all its decisions on how to do the shareholder out of his legitimate gains. However, it still manages to attract enough investors -- it boasts of a record of being the most frequent visitor to the capital market. And its success with investor relations can be gauged from the fact that it has convinced one big institutional investor -- IDBI -- to put in more than 30 per cent of its (IDBIs) net worth into the group.

While no one really knows why or how the group manages to remain a prime attraction for individual investors and institutions alike, the books of accounts of the group reveals interesting aspects on how the company manages to keep shareholders happy. But the cracks are now appearing. A section of investors has started believing that the