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Commentary

NSEL Modifies Settlement Plan to 30 Weeks, Adds a Balloon Payment at the End

Remember when NSEL had said that it owes brokers 5,600 crores, and out of that around 2,000 cr. was going to be paid immediately, while about 3,300 cr. would be paid over the next 20 weeks?

That was a lie, it turns out.

Remember when Ramesh Abhishek, Chairman of FMC had made a big statement that he had requested that small investors would get paid first?

That is also probably a lie.

Today there is a *NEW* settlement plan. This one is 30 weeks long and involves payments of Rs. 174 cr. to brokers every Tuesday, for the first 20 weeks. And then Rs. 86 cr. per week for another 10 weeks. And magically, at the end, 1220 cr. on week 31.

NSEL Settlement Calendar

And there’s Interest! But, er, at the end?

These members will pay 8% simple interest on their outstanding amounts,and the entire interest will be paid out at the end.

Why? Why isn’t that paid out along with the payments? If they can pay the principal, they can pay the interest as well.

 

Will this plan work?

Are you frikking kidding me? They have lied about the settlement guarantee fund – it was 800 cr., then it was 60 cr., then it was some mixture of commodities and Rs. 5 cr. cash.

Then they have backtracked on an earlier quasi-settlement where 2100 cr. was ready to be given on time. Where has that money gone? Have those people decided that if they can pay on an EMI basis, they might as well put the money in the bank and pay over time instead? Why isn’t that money being paid out immediately?

I don’t believe this settlement will happen in this schedule. The FMC has to approve, it seems

But I believe they might pay a few “installments” just to keep people at bay. But the amounts involved are too large, and the people they owe too influential for them to get away easily.

Why are they still in control?

If the exchange can’t meet its dues, management should be thrown out, and SEBI/FMC should come in and run a very rough ship including putting criminal fraud cases on any members that have wilfully defaulted. And chase the money trail to find out if it ends with any of the promoters of the exchange and if so, put them in jail.

The FMC/SEBI combine can easily monitor the payments and take

Why is NSEL’s current management even allowed to enter the building?

There is a Trust Deficit

This is an extraordinarily long time to settle what can easily be gotten by selling stock. Even if they could sell even Rs. 1,000 cr. of stock, they should do so and make those payments immediately.

Chances are the stock does not exist. In fact most people are now convinced it doesn’t exist.

If the stock doesn’t exist, then the exchange and these "24 members” who now control the stock, have lied to us all along. Why would you believe their fancy payment schedule now?

Will they do the same thing at MCX?

If there is a default from members at MCX, will they dishonour their commitment as an exchange?

On Tuesday, there is an open interest of more than 16,000 cr. at MCX. The OI hasn’t come down much since August 1, when the NSEL scandal broke out. Are people going to be comfortable with MCX going forward if any of these NSEL payments are missed?

What about FT?

The FT stock fell another 10% today, but Friday will probably see a bigger reaction. Given the kind of market this is, I wouldn’t be surprised if the stock went up! However at a fundamental level, it is a little bad for a business that is supposed to run exchanges, to tick off brokers and have a settlement crisis.

Btw, I love this statement in their circular:

In case any payment is not realized, then the Exchange shall take measures as per its Rules and Bye laws.

Yeah, really? They already haven’t paid on time. What rules/bye-laws have you used, tough guy? They’ve called your bluff. 24 people have held your exchange to ransom. Some of them are related to your chairman. I don’t think anyone believes you will take action.

While this settlement is some news, it’s probably not good news.

  • As against earlier (unilateral) promise of 16% P.A. interest they’ve (arbitrarily again) reduced it to 8%, even at this rate, the total interest burden comes out to be 143.64 Crores (287.29 at 16% rate)-so the actual liability is not 5574 Crores, it’s 5718 Cr.
    One can safely assume that 1220 Cr to be distressed debt if not bad debt.
    FT/NSEL are behaving as if it’s their ‘ghar ki kheti’ the way they’re giving different numbers and versions of facts every time. Let’s see how ‘investors’ and regulators/govt. respond to it.

  • mangoman says:

    Another dark comedy is that the food minister asked the promotor of FT to take responsibility. This sounds like kangaroo court judgement.
    In reality it is anyway NSEL’s responsibility. As a promotor it is Jignesh’s responsibility.Still what prompts government to open its ugly mouth. Because they want to close the chapter in hush hush manner.
    They dont want to do root cause analysis for obvious reasons. These stupids allowed a exchange to function in regulatory vaccum for these many years.

  • Yusuf says:

    Excellent in-depth reporting on NSEL crisis.
    Thanks Deepak !!

  • Some more thoughts:
    This ‘settlement calendar’ is a very amateurish work probably done by a rookie management trainee in the last few minutes before deadline. An excel sheet, some imaginary numbers, a few simplistic assumptions and instructions on how much time to buy seemed only variables that have gone into it.
    I have a few questions:
    1. Why can they not run daily settlement cycles wherein the money received by say 12 noon be paid by 3 pm same day or at max. money received today be passed on tomorrow morning? As it is they’re quite adept at handling multiple settlements across products everyday and it should not be an operational hurdle. This is something you everyday in a futures exchange (which is what NSEL was all this while) when you settle daily MTM. Why not pay the money as soon as it comes and reduce the interest burden and having lesser and lesser aggrieved people as they go along.
    2. An paltry interest rate of 8% (if at all it’s going to be paid) is not a ‘penal interest’ but a ‘reward interest rate’ for the people who have borrowed at 18% (as it turns out, most of them were not worthy of even that). Just for contrast-my home loan, for which my home worth double the loan amount is a collateral, costs me 10.5%, and that the cheapest type of loan I can have today. What’s the incentive for people who are in a position to pay back (if there’re any) to pay back sooner than later ?
    3. What makes them think that they’ll get exactly 174.72 Crores every week (nothing more, nothing less)? Their answer would be “No we don’t know but we have to have a number to work with.” But how are they going to enforce it? Do they have some securities maturing in weekly staggered manner or a SWP from where they’ll pay up this amount? If not how’re they going to make good any possible shortfall?
    Earlier there was a talk of paying small ‘investors’ first, I see some merit in it-not due to any sympathy for small investors but for operational and strategic reasons. It makes sense to make full payment to creditors starting with the smallest amount. This would’ve reduced the number of aggrieved parties and less hue and cry when compared to ‘pro-rata’ payment which means that everyone is locked-in for seven long months.
    But wait, why should we even consider their version of settlement and pro-rata payment. A delay in payment itself is a default BY THE EXCHANGE which has already occurred. Now the enforcement agencies must kick-in, sell off the commodities (if there’re any) deposited by borrowers, liquidate the NSEL and it’s promoters’ assets and pay back the ‘investors’, Let NSEL/it’s promoters recover from the borrowers at leisure. In addition govt. should levy exemplary penalties on NSEL for violation as well as fraud proceedings for misrepresentation and fake WRs. As you’ve rightly said, in all this not a single-penny of the tax-payers’ money should be touched.

  • Bhushan says:

    Looks suspiciously like KFA’s salary payment plan.

  • humminburd says:

    Reminds me of satyam / maytas .. where the govt was silent when the backroom deals were being made with the ysrs but the coverup was swift once shit hit the ceiling !
    APMCs are a great source of income and place to park funds of politicians, and it would be rather inconvenient if they were regulated … Dont know if politicians received a cut for keeping this exchange unregulated ..

  • Sanju says:

    Looks like the 24 persons who have given warehouse recipts are all fake and was issued to get cash so that they can speculate. and all the money is gob=n e in specvulation of forex and or in stock market and or in commodities.
    Here Nsel as an exchnage was a facilitator to collect money to help a few speculators
    Sab Satta hai They have lost all in speculations and have given investors fake warehouse receipts.
    It is worse then the bitcoin case.

  • ps says:

    mr. deepak shenoy,
    as u are following the nsel issue had purchased some gold and silver in nsel and they are lying in demat a/c . what will become of that