Fund diversion to markets, GE Shipping style

However, when contacted, the company claims that the amount placed in "vyaj badla through a SEBI-registered broker is not a stock market operation but only lending of funds against the security of the stocks to earn interest." "In this lending, the company does not take any risk on the value of the stock going up or down and earns only the interest on the funds lentagainst the securities,” said PR Naware, president (corp) and company secretary, in a written reply to The Indian Express.

Naware claims that "one can withdraw the money from vyaj badla at very short notice. This type of placement of funds for interest, suits our requirement as we need to use funds at a short notice for our day-to-day business." While Naware claims that the company has not deployed its funds in stock market operations, the fact remains that financing the stock market operation of another person is tantamount to pumping funds into the market.

Said an analyst with a brokerage tracking major corporates in India, "financing a stock market operation is as risky as involving in a share purchase or sale. Looking at the track-record of Indian markets and major players, it’s not very difficult to understand the reasons for a large number of manipulations and scams." Well, what is the guarantee that there won’t any defaults in vyaj badla finance? Naware defends the fund deployment saying that "the shares in vyaj badla are held by the BSE Clearing House on behalf of broker clients as stipulated by the SEBI." "The Clearing house has an insurance cover of Rs 820 crore and the exchange has the trade guarantee fund of Rs 100 crore. Thus the ebtire vyaj badla transaction is closely supervised by the stock exchange and the SEBI as such it is considered as one of the safe and secured financing transaction available to those who are interested in security of funds and liquidity," he adds.

The past history of the Indian capital market and the track-record of stock exchanges and the regulator in curbing manipulation in the market-place is debatable. The regulator is yet to complete some of the investigations — like the price rigging in BPL, Sterlite and Videocon and the involvement of promoters — in the market. Many a time, Sebi shut the stable doors after the horses fled from the scene.

Fund diversion by corporates to the stock markets has been going on for quite some time. National Stock Exchange managing director RH Patil had gone on record six months ago saying that corporates were diverting to the stock markets. Many companies — including GE Shipping and Lupin — had paid a heavy price for entering into the real estate business. Some of themare even now sitting on properties acquired eight or nine years ago at sky-high levels.

There is an urgent need to frame stringent rules and regulations by the market regulator for corporates putting money stock market-related activities. Otherwise, companies will find it easier to rig uptheir own shares using company funds.

Auditors qualify GES accounts
MUMBIA:The auditors of Great Eastern Shipping (GES) have qualified the accounts of the company on several changes in the accounting policies, the respective expenses for the year are stated higher /lower and the profit for the year is lower by Rs 10.19 crore. "The useful life of its bulk carriers and mini bulk carriers has been revised, resulting in a higher charge for depreciation to the profit and loss account by Rs 7.89 crore," the auditor pointed out.

"The changes in the accounting policies have not been made with a view to show higher profits," said a company statement. There is no wonder its share price has been languishing in the stock market, attracting the attention of takeover predators.