| THE CASE OF GLOBAL TELESYSTEMS |
|
The transactions of sale purchase undertaken
in the scrip were beyond the powers of the concerned functionaries.
It is not clear who authorised the build-up of these large
positions.... The build-up of a portfolio in the shares of
Global Tele appears to have facilitated the upward trend in
its prices and the decision not to offload the stock to book
profits when the prices were favourable or cut losses in adverse
circumstances do raise some doubts.
|
| THE CASE OF SSI |
|
There were opportunities to exit from the
long position with profit but these were not availed of either
out of wrong judgement or in order to prevent any selling
pressure in the market; either way, it was not in the interest
of the UTI and its investors. More so because the ERC report
had given clear warning signals.
|
At
the heart of UTI's woes is clearly the absence of a coherent investment
policy. Risk management concepts such as exit norms, profit-booking,
stop-loss limits, and monitoring of investments and NPAs are alien
to the institution. The few norms that are part of UTI's General
Regulations, 1967, have been flouted. For instance, the trust is
not supposed to invest in more than 15 per cent of the capital issued
by companies. Yet, by June 2001, UTI had between 20 and 30 per cent
in 22 companies, and over 30 per cent in seven. Believe it or not,
the holding was as high as 56.95 per cent and 54.83 per cent in
two companies-Palace Heights Hotels and J.K. Pharma Chem-making
them in effect UTI subsidiaries!
What's also evident is that equity research
cell at UTI wasn't exactly given pride of place, despite recommendations
by an earlier committee (the Deepak Parekh Committee) to do so,
and despite the board of trustees apparently agreeing to base investment
decisions on research analysts' RECOs. The research cell ostensibly
was dishing out weekly recommendations, for which they were given
the authority. Meetings between fund managers and analysts, as suggested
by Parekh, were also supposed to be happening. But the Tarapore
committee could lay its hands on only a handful of reports, many
of which were over two years old. What's more, whatever recommendations
were made by the analysts were ignored. For instance, the cell had
used the word ''avoid'' with reference to investments in a host
of IPOs, including Sonata Software, HCL Technologies, and Geometric
Software. Similarly, the analysts had expressed caution regarding
private placements of shares in Cyberspace, Shonkh, and Broadcast
Worldwide, to name just three companies.
Fixing The Blame
Whilst it can be easily argued that the analysts
could have erred on the side of caution, you have to wonder: Who
was the wise man making most of these decisions? Well, look no further
than the chairman, whose approvals litter the sundry dud investments
made by UTI in the July 1998-June 2001 period. What's pertinent
is that he exceeded his authority when doling out many of those
approvals. For instance, of the 378 investments in debt instruments
via private placements totalling Rs 12,152 crore, the chairman sanctioned
275 (the executive committee sanctioned the rest) worth Rs 6,470
crore, exceeded his authority in 76 of those transactions, totalling
Rs 1,920 crore. These 76 included 43 investments worth Rs 982 crore
in unrated investments. Then, of the 30 IPOs done between July 1998
and June 2001, the chairman nodded his approval for only 29!
Even as experts have gone to town over the
past fortnight, prescribing their fixes for India's largest mutual
fund, current Chairman M. Damodaran and his successors could achieve
plenty by avoiding all the gaffes made by UTI over the past decade.
That may sound deceptively simple, but if a comprehensive and transparent
investment policy is formulated, which involves, amongst other things,
keeping the chairman at an arm's length from the sanctioning process,
there might still be hope for UTI. May 31, 2003-by which date UTI
has guaranteed a repurchase price of Rs 10-is still some time away.
| ANYBODY LISTENING? |
|
Will anything come out of the 'high-level'
committee comprising S.S. Tarapore, M.G. Bhide, and R.K. Raghavan
that was set up to look into the activities of UTI? Chances
appear slim, considering that the Tarapore committee isn't
the first to recommend a rehaul of the institution. Way back
in 1993, a committee chaired by N. Vaghul was set up to review
UTI's regulatory framework. Vaghul had then concluded that
the institution's mutual fund operations should come under
Sebi's jurisdiction. Of course, no one listened. The Vaghul
committee had also suggested that UTI should set up at least
one asset management company (AMC) as a subsidiary to manage
the mutual funds. The idea was that the AMC-which would also
be under Sebi's purview-would handle the mutual fund activities
and UTI as the parent could then focus on operating like a
financial institution, although it would be allowed to raise
retail funds. The committee felt that if this system was adopted,
''the UTI would be in an advantageous position of offering
to unitholders not only a guaranteed return, but in addition
a bonus if the trading activities result in a profit.'' Today,
those returns, bonuses and profits remain pipe dreams.
Then, in 1994, there was Justice M.H.
Kania's Social Audit Committee, which raised doubts about
the levels of transparency at US 64, since neither its net
asset value nor its full investment list was made public.
But it was in 1996 that the Committee on US 64, chaired by
Deepak Parekh, got down to the core of the problem: that UTI
was maintaining high dividends by drawing on reserves, which
inevitably slipped into the negative zone. More alarmingly,
UTI was also being forced to book profits by selling the best
stock in its portfolio to meet the dividend requirements.
The Parekh committee also hit the nail on the head when it
stated that investment decisions were highly centralised,
and independent fund management teams were not in place.
You have to wonder if the crisis at
UTI could have been averted if many of the Parekh committee
recommendations had been implemented in their true spirit.
For instance, the committee clearly felt that the need for
separate and independent teams of fund managers for each scheme.
If inter-scheme transfers had to be resorted to, they would
have to be effected on the basis of independent decisions
of fund managers. Is somebody listening, at least now?
|
1 2
|
