Ministry bares teeth in clean-up
THE manner in which Pavan Sachdeva, chief promoter of the failed 4.28 billion rupee (about HK$1.05 billion) M S Shoes issue, has been treated by the Central Bureau of Investigation (CBI) makes it clear the Indian Finance Ministry has decided to crack down on economic offenders.
Although a prominent industrialist with political clout, Mr Sachdeva received no special treatment.Photographs of him being led away by police were run on the front pages of newspapers.
The feeling is that the government is determined to make an example of Mr Sachdeva.
Shown to be relatively toothless in its handling of stockbroker Harshad Mehta, the man behind a 50 billion rupee securities scam in April 1992, the Finance Ministry now wants to reveal all its teeth in one go.
The raid on the offices of the Securities and Exchange Board of India (SEBI), and public arrest of three senior officials revealed a lack of confidence by the government in the SEBI.
This is all the more significant as it comes after a recently promulgated ordinance arming SEBI with prosecution powers.
What does this portend for the capital market, especially the primary market? The main complaint that promoters had earlier against the SEBI was that it took far too long to clear papers for prospective public issues.
Ironically, it is now likely that the institution will take even longer, and go through each set of documents carefully.
Market watchers feel the M S Shoes case will bring about a sorely needed change in existing regulations, and increased vigilance.
The raids conducted by the CBI on both SEBI and SBI Capital Markets have hit morale at both the watchdog institution as well as at various merchant banks, particularly those operating in the public sector.
The ultimate losers will be companies making public issues, which will be asked to make much more detailed disclosures, leading to even longer delays.
Once the controls are in place, and the quality of disclosure made in the offer documents improves, the primary market will be much more disciplined, and there will be fewer issues by promoters with questionable credentials.
