MUMBAI, FEBRUARY 27: While the ICE (infotech, communication and entertainment) stocks have soared to dizzy heights on the stock markets, these companies have quietly started taking advantage of the boom by privately placing their equity shares. At least two dozen private placement deals were reported by ICE companies raising around Rs 2,500 crore in the last two months.On top of this, hundreds of new dot com companies mostly floated by shady promoters - are furiously raising resources through the private placement route.After rigging up their share prices, it is not surprising that these companies have found it lucrative to tap the private placement route. One media company offloaded shares worth Rs 800 crore to a foreign investment firm recently. Another information technology company based in Chennai raised around Rs 1,000 crore through this route. One telecom company which was involved in the telecom scam is now mobilising a huge sum in a bid to retire existing debts.Most of these so-called private placement deals are shrouded in secrecy with investors rarely getting any information about the end use of funds. The private placement market is now flooded with enquiries of dot com and ICE companies. As most of these firms are private, unlisted companies, not much information is forthcoming about the kind of money changing hands. It's free-for-all now. With ICE companies commanding very high valuations on the stock market, they are asking for a big premium. It is to be seen how many of them will survive in the coming months, said a merchant banker.Companies making equity private placement find it very simple and cheap when compared to other resource-mobilisation routes. Shareholders hardly raise any questions while the managements seek permission for such placements at the annual general meetings. Most of these deals are based on artificially rigged prices. Prices are bound to come down in the same velocity as they go up.It is not uncommon to see share prices of companies planning to float private placements soaring on the stock markets. Share price of one telecom company which is now raising money through a private placement doubled in less than three months. It's not that the fortunes of this company have suddenly improved.It's part of a massive rigging operation. A strong broker syndicate which is hand-in-glove with the promoter of this company is artificially pushing up the price. It's a win-win situation for the broker and promoter. But the investors fate will be decided only later, merchant bankers said.Share prices of such companies are rigged to get a good price for the private placement. On top of this, such deals are rarely vetted by independent experts and shareholders hardly get any information about the use of funds raised in this manner. Seeing the benefits of private placement, several infotech companies cancelled their public issue plans and opted for private placement. One Bangalore-based company and a Calcutta firm cancelled their new issues and privately placed equity shares.Yet another entertainment company last week made a private placement of Rs 125 crore at a price of Rs 1,785 per share and the bulk of the shares were allotted to financial institutions and banks. It's not that all of them rig their shares and make private placements. The complaint of small investors is that they are not in the picture at all. Small investors are totally ignored in such private placements. In many cases, the identity of institutional investors, funds and other high net worth investors is not known, admitted a merchant banker.Genuine companies planning to raise funds for genuine purposes are concerned with the free-for-all situation in the private placement market. The worldwide boom in telecom, media and technology companies has come favourably for such companies in India. It's a three-step process for ICE companies in India. First, push up the prices, then make a private placement and lastly go for an overseas listing (preferably Nasdaq).The rigging process will continue even while private placement and overseas listing plans are executed. Take for example, a Chennai-based infotech company which recently announced its plan to go for a GDR issue. While other technology shares got a severe hammering last week, this company's share price (Rs 10 face value) last week shot up 66 per cent to Rs 6,415.Leading merchant bankers are now busy finalising placements of ICE firms and dotcom companies. Analysts are worried about the prospects of a repetition of the public issue scam in 1994-96. As the survival of many ICE and dotcom companies is doubtful, the regulators and the government should not allow dubious companies to rig the prices and raise money through private placements. The government should not allow shady infotech companies to list their shares on Nasdaq.Many dubious companies which were allowed to tap the GDR market in the 1992-95 period have no takers with their GDRs going abegging on overseas exchanges. Will the same story repeat now?
