NHAI & PFC BONDS-Loss of Interest to investors on thousands of crores

Ag/tkover/sebiltr
December 30, 2011

Shri U.K.Sinha,
The Chairman
SEBI
SEBI Bhavan, 3rd Floor, B Wing,
Plot No. C-4A, G Block
Bandra Kurla Complex
Mumbai: 400051


Re. Loss of Interest to investors on thousands of crores


Further to my email of yesterday, I wish to bring to your notice once again the loss to investors on thousands of crores investment and undue enrichment of issuers at the cost of Investors.

“ First Come First Serve” has been associated with short changing the investors right from the MORGAN STANLEY IPO. It still continues to do so no matter who is the issuer—even Govt. Bodies.

Without ensuring proper mechanism in place, Issues like NHAI & PFC have been cleared on “ First Come First Serve” . More over interest on that portion of application money on which no allotment has been made is only 4% as against 8.3%.

It is in the issuer’s interest to suppress the information of oversubscription and keep the offer open for a much longer period then required, if for nothing else to earn the interest arbitrage. Some basic questions that arise are:

1. How the issuer proposed “ First Come First Serve” basis of allotment without first putting a proper machinery and system in place to monitor and announce to the Public the level of subscription of the quota in each category if not on hourly basis, at least on the end of day basis.
2. How can such half cooked prospectus be submitted to SEBI by such reputed and large Merchant Bankers and issuers?
3. How can SEBI overlook the absence of the system and mechanism to announce the subscription level in each category?
4. On what basis less than 50% interest ( 4% instead of 8.3%) is allowed to be paid to investors on non allotment?

To remedy the situation and to protect investors may I suggest the following directions by SEBI:

A. Put on hold any future issues promising allotment on “ First Come First Serve” till such time that they have a proper machinery and system in place to monitor and announce to the Public the level of subscription of the quota in each category if not on hourly basis, at least on the end of day basis.
B. Ask NHAI & PFC to announce the level of subscription under each category on daily basis
C. Direct NHAI & PFC to pay interest @ same coupon rate i.e. 8.2% or 8.3% on non allotted amount as well rather than 4%.
D. Direct NHAI & PFC to stop accepting additional subscription the moment it reaches FULL level or may be 110%-- allowing 10% for rejection, cheque bouncing etc.
E. In your internal ranking of Merchant Bankers performance, put negative marking for submitting such faulty proposal for your clearance.

Shall be obliged to hear from you at the earliest.

Thanking you,

Yours truly,


Arun Goenka