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Commentary

NSEL Gets Just 8 Cr., FMC Toughens SGF Norms, Jignesh Proposes Haircut, FT Directors Quit

While NSEL paid out Just Rs. 92 cr. out of the Rs. 174 it was supposed to this Tuesday, it is going to be even worse next Tuesday. NSEL defaulters were supposed to have paid in the second installment of their dues on Friday, but what it had received, sadly, was just Rs. 8.5 cr. in this week. Most of that came from Metkore Alloys who paid Rs. 5.4 cr. (despite having paid double its commitment last week)

(Note: Sankhya investments also paid up 0.3 cr, which along with it’s double-of-commitment last week will make it “current” with the settlement. Topworth and Aastha haven’t paid, but they paid 3x commitment last week)

What this means is that NSEL might pay out an even smaller fraction (8.5 cr.) out of the 174 cr. it must. This is a huge default and the wheels are beginning to turn elsewhere.

In an investigation, tax authorities have found that the stocks backing the transactions at NSEL were not there at all, or not enough.

"In some cases there are no stocks, in others the quantity of the stocks is below that claimed by some of the buyers," a senior income-tax official told ET

And then, Rs. 550 cr. worth cheques given by NSEL have bounced.

In a major twist, NSEL promoter Financial Technologies’ founder Jignesh Shah proposed a 25% haircut, which was rejected by investors. Given that there is potentially fraud involved, and that the promoter might have to go to jail, there will likely be a long wait before money is recovered, if at all. A haircut might look feasible, but only if the money is available as visible demand drafts – no one will believe any promise that Mr. Shah makes anymore.

Two directors have left the Financial Technologies board. R. Devarajan and B.R. Barpande, put in their papers as directors.

The FMC has realized that the settlement guarantee fund of NSEL was largely bogus. It has now issued directions to all commodity exchanges that the settlement guarantee fund must have:

  • 5% of all gross revenues since 2007-08
  • Member capital and refundable deposits of members
  • Further contribution of 5% of revenues each year.
  • Min Rs. 10 cr.

A rough calculation of MCX revenues over five years is about 2,000 cr. which should mean they need to allocate about Rs. 100 cr. as the SGF contribution. (It has only 1.9 cr. in it as per their 2011-12 annual report). NCDEX will need about 25 cr. (500 cr. revenue in the last five years) and has 2.4 cr. in their SGF (from ET).

This is not the end, or even the beginning of the end. This might however be the end of the beginning.

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