Different Strokes

Not like the Samp;LsHere is more unsolicited information for the Deepak Parekh committee which is to restructure Unit 64. The committee say...

Not like the Samp;Ls

Here is more unsolicited information for the Deepak Parekh committee which is to restructure Unit 64. The committee says that if the US Government provided a bail-out in the Savings and Loans Samp;L scandal, why shouldn8217;t UTI be bailed out? Ken Starr8217;s testimony against President Clinton shows how wrong this is. Apart from Lewinsky, Starr spoke about Samp;Ls, and said the losses were a colossal 350 bn, of which the government paid only 65 bn, and that too only since it had given a guarantee of 25,000 per deposit. But since the Indian government has made no such contractual agreement with UTI investors, there is no comparison.

Standby versus soft loan

One can still make a case for bailing out US-64. The government should pay back to unit holders their rightful returns that were diverted in the past. Someone who ought to have been consulted by the Parekh committee tells us that, UTI should be offered standby credit and not a soft loan. This will ensure that it uses thefunds only for redemption, and that too if there is a run on units. This still does not allow UTI to continue the preposterous policy of hiking sale/repurchase rates and maintaining dividend at 20 per cent. In today8217;s market, corporates are unlikely to find too many safe investment alternatives even if dividend is brought down to 14 per cent. The sale price naturally comes down to the realistic par level and re-purchase is adjusted accordingly.

Dangerous lending

A few months ago, Sterlite positioned itself as a giant killer capable for taking over the multinational owned Indian Aluminum Indal. Yet with four alleged leaks over two years, a few deaths and several injuries, and now its court-ordered closure has brought its true image back into focus. During its manipulated price rally, even financial institutions had ignored its environmental track record and even its balance sheet. The same Sterlite was not only encouraged by a particular financial institution to bid for Indal, but even given aclean takeover finance to fund its acquisition. Now the price has plummeted, the plant closed and a huge payment obligations is coming up next year. Is it any wonder that Standard and Poors Samp;P is worried about non-performing assets and has downgraded them?

More downgrades?

Samp;P8217;s downgrade of two Indian financial institutions and banks is only the beginning. As a top rating source had explained to us, not so long ago, the credit rating of FIs and banks remained high because it was believed that the government will not allow these institutions to fail. The downgrade of ICICI, IDBI and Bank of Baroda, to a negative rating soon after the UTI fiasco indicates that the big rating agencies have lost confidence in the government8217;s potential to bail them out. Should this not lead to some readjustments to the high triple A rating of these institutions by domestic rating agencies? The fact that all three Indian rating agencies 8212; CRISIL, CARE and ICRA 8212; have been floated by the institutions may stillstop this happening.

More problems

In a quiet move last week, the BSE declared six brokers as defaulters. But its problems are far from over. Two former big brokers have been asked to square up all their transactions as a possible prelude to closing down their market operations. One of these has close links with a senior police official and has been escaping action for a long time. The other, a crony of the bull cartel, is finding it difficult to square his speculative position in the Calcutta exchange. Add to that the panic about nearly Rs 300 crores worth of fake/stolen shares and there is panic among operators. The stock indices are naturally headed steadily downwards.