Investors face high price for selling
A unique situation has arisen in Indian stock markets, with sellers of Khaitan Hostombe Spinnels (KHSL) shares being asked to pay to sell their shares.
The price of each 10-rupee share of the Calcutta-based company has dipped to 2.5 rupees, well below the last dividend of 30 per cent or three rupees per share paid out by the company.
A 10-year-old Finance Ministry circular states that sellers of new shares arising out of rights issues or conversion of warrants has to pay the seller an equivalent of the last declared dividend, known in stock exchange parlance as old-new compensation value (ONCV).
Normal practice dictates that the amount of dividend is deducted from the share proceeds before the broker pays the seller.
However, in the case of KHSL, the dividend amount exceeds the current share price, which means that sellers have to pay 0.5 rupee per share as ONCV to sell their stock.
It appears that the company has delved heavily into its reserves to pay a hefty dividend in the hope of advertising the payout during its next public issue.
The paradox has been brought to the attention of the Calcutta and Bombay stock exchanges and talks are underway to sort out the problem.
Indignant sellers have refused point-blank to pay the additional 0.5 rupee per share.
