Cover story: Rigged! [Pg.2]

[ Contn. ]
Rigged!

The KP Effect

ANAND RATHI
As per BSE sources, Rathi used the executive director to get details about operator positions from the surveillance department. He had to do so himself last fortnight simply because the ED wasn't present at the exchange.

DEENA MEHTA
Deena Mehta's tenure as BSE president was cut short after it became known that she was present in Rathi's room when he made the call to the surveillance department.

M.G. DAMANI
Brokers at the BSE now speculate that M.G. Damani, a former BSE president, could once again make it to the hot seat, as he is no longer a broker. ''I haven't even thought about it,'' is Damani's reaction.

And let's not forget the mini-KPs that mushroomed all over the country. It's called line na sauda (or line function) in market parlance, when operators place huge orders to brokers in other centres. Those brokers in turn, taken in by the KP effect, place their own orders, creating a ripple upward effect in the stock. That KP had to look to other centres was because he would exhaust his trading limits on the BSE. What's more, the cost of transactions in other centres (like Ahmedabad) is cheaper.

According to broker sources, KP's net worth would be at least Rs 1,500 crore (on the lower side), he operated via a 50-60-strong broker network, and his daily turnover on an average day would be Rs 400 crore (that's more than the entire turnover of the Ahmedabad stock exchange).

For all his alleged manipulations, there's still respect in some quarters of the market for KP. ''His research and due diligence were exemplary,'' gushes a broker close to him. ''The problems begin once the fanfare sets in.''

Indeed, in early 1999, when KP first came on the scene, few expected his portfolio to shoot up the way it did. Consider Aftek Infosys, for instance, which he entered at Rs 26. The stock touched a peak of Rs 4,900 a year later. Similarly, he got into Zee in the Rs 70 levels, and Himachal around Rs 68. ''He exploited the inefficiencies in the system: illiquid counters, non-transparent numbers by companies, and an almost irrational fancy for tech stocks,'' adds another broker.

By the time the NASDAQ began to melt last April-which resulted in the Sensex tumbling from Rs 6,000 to the Rs 3,200 levels-KP decided it's time to bail out. He did so, and in the process took out Rs 1,200 crore from the market, say sources, further accentuating the crash on the Mumbai bourse. That's when he decided to play veecee, and along with buddies Vinay Maloo, Chairman of HFCL, and James Packer, floated the $250-million KVP Fund. Although HFCL officials point out that each of these partners contributed equally to the fund, the market grapevine is that the $250 million being bandied about was the money KP had taken out from the market. The thrust was to be on biotech and convergence companies.

They obviously didn't find much worth investing in. The only investment made was in portal cricketnext.com, of some Rs 8 crore. What's more, KP's plan was to float KVP as a venture capital company, but SEBI regulations don't permit that (they have to be trusts). The long-term idea was to eventually take KVP public. HFCL officials explain that the plan hasn't been abandoned.

But clearly KP got disenchanted with the veecee scene, and then caught on to another fancy: media and entertainment stocks. In mid-2000, he picked up stakes, ranging from 5 per cent to 15 per cent in companies like Amitabh Bachchan Corp (in a bid to restructure it), Mukta Arts, Tips Industries, Pritish Nandy Communications, Balaji Telefilms and Creative Eye, most of these at the pre-IPO stage.

IN THE NAME OF GLOBAL TRUST

In Hyderabad, marketmen have rechristened it the Gelli Trust Bank. The Chairman and Managing Director of Global Trust Bank (GTB), Ramesh Gelli, isn't commenting, but big bull Ketan Parekh's hand in propping up the shares-in a bid to wangle a better swap ratio ahead of the merger with UTI Bank-is becoming increasingly evident. And, meantime, various figures are being bandied about GTB's total exposure to KP and his associate companies-some say it could be as much as Rs 250-300 crore at one time, which is clearly above the prudential limit of 20 per cent of net worth set by the Reserve Bank.

Even as both UTI Bank and GTB officials deny that the merger has been called off, a fresh valuation is clearly the need of the hour. After all, investigating officials have been able to establish a clear link between the spurt in GTB's share price and the trading patterns of KP. In mid-October, the GTB stock spurted from Rs 70 to Rs 113 in less than three weeks. And by December it had shot up to Rs 120.

Let the rigging issue be for the time being and focus on KP's borrowings from the bank. GTB demands a 133 per cent collateral for financing pay-ins. This obviously meant that there was plenty of pressure on KP to meet those collateral norms, which are fixed as a percentage of the shares' market value, when prices were crashing. The bank, for its part, too would like to cut its losses by selling the collateral, although GTB officials have denied this.

Then Bharat Shah got arrested, and these stocks came tumbling down, largely because Parekh is believed to have used Rs 150 crore of Shah's seemingly tainted money to prop them up. Having burnt his fingers there, Parekh got back into the market late last year with full gusto. The timing couldn't have been worse. NASDAQ was on a freefall. And the bears were lurking in the shadows.

-Additional reporting by Debojyoti Chatterjee & E. Kumar Sharma

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