VANISHING COMPANIES OF 90s

Good Bye!!!

Vanishing Companies As per the definition stipulated by SEBI:

Any listed company, which raised

money through IPO but, stopped

operations, did not file returns either

with the RoC or SEBI and did not

exist on the registered premises

is termed as vanishing.

Liberalize the market

Controller of Capital Issues

SEBI

IPO

Promoters took

advantage

Raise money at fancy

premiums

No supervision of SEBI or DCA

Companies misused the

funds

Investors allege SEBI and DCA

Case of Vanishing Companies in India

Number of vanished companies in 90s

• 1992 to 1998- around 122 companies 'vanished' after making IPO of their equities.

• Over 7000 plantation companies were vanished in the era of 90s.

• Most of them were located at Maharashtra and West Bengal.

Vanished Plantation CompaniesCompany Location

EURO FRESH PRODUCE PRIVATE LIMITED

Chembur, Mumbai.

APS TEA CO PRIVATE LIMITED Jalpaiguri, West Bengal.

INVISION PROJECTS PRIVATE LIMITED

Prabhadevi, Mumbai.

DINESH AGRO PRODUCTS LTD Pune, Maharashtra.

ASR AGRO LTD Vishakhapatnam, Andhra Pradesh.

BHAWANIPUR TEA COMPANY PRIVATE LIMITED

Sonari, Assam.

HARIOM PROTEINS PRIVATE LIMITED

Ahmedabad, Gujrat.

• Failed to file returns with Registrar of Companies for a period of two years.

• Failed to file returns with Stock Exchange for a period of two years.

• Not maintaining company’s registered office at the notified address.

• None of its Directors are traceable.• Mis-statement & Fraudulent prospectus and

Balance Sheet.

Reasons of vanishing companies

What went wrong?• Inflated figures for cash and bank

balances of INR 5,040 cr. were reflected

as INR 5,361 cr. • Operating Profit were artificially

boosted from the actual 61 cr. to 649 cr.• Satyam also showed a fictitious interest

earning of Rs. 376 cr.

Need for Manipulation

Show the superior performance of

company.Drive up the stock values. Manipulations were like: Raising fictitious bills for services that were

never rendered. To increase the Cash &bank balance

correspondingly. Operating profits were artificially boosted.

IMPACT ON INDIAN I.T INDUSTRY

• More difficult for other Indian IT service players to win business.

• Hurt the prospects of foreign money flowing into India. • Global perception about Indian companies.• Indian stock market slipped over 7% on 7th

Jan., 09.

Effects of Satyam Scam• “Apparently fearing that he may lose his job, a

23yr old employee of satyam computers allegedly committed suicide.”

• US banks cancelled credit cards of most of the US based Satyam employees.

Need to save Satyam• To maintain stability and to bring the

position of market on track.• To save the bread of 40,000 employees.• As investors were losing trust and

confidence on other private companies also.

Acquisition of Satyam

ENRON

Andy Fastow’s SPE strategy:

TEAK PLANTATIONS

ANUBHAV TEAK PLANTATIONS

• Anubhav Group of Companies.• Established in 1992.• 91 offices and over 1800 employees.

Commencement• World Wide Fund for Nature.• Integration from teak to furniture.• Mobilizing funds from the investors.

Problems• Income= 38 crores;

Net profit= 38 lakh.• Paid up capital= 36 lakhs;

Borrowings= 2.64crores.• Loans= 25 crores.

Investigation• Anubhav had serious liquidity problem.• Blame SEBI and rating agency.• Investors filed complaints.• Company procedures at fault.

• CRISIL: more than 300 crores were contributed by the investors.

• NABARD: The Teak trees were sold at Rs. 1500-2000.

• MRFD: found that for plantation of these trees costed only Rs 400.

• The return on investment was seven times more.• Yield of the trees with a girth of 60 cm and

above, in 15 years, would be about 5.1 cubic feet per tree.

• SEBI was invited by the ministry of finance.

After-effects• Criminal case on 13.10.1998.• Transferred to EOW-II Chennai on 22.01.2000.• Natesan was under judicial custody for 8 years. • Bail on 22.03.2007.

KINGFISHER AIRLINES“WELCOME TO AN AIRLINES WITHOUT PASSENGERS”

Snapshot of DownfallKingfisher airlines could not meet their

expenses.Total debt of Rs.7000 cr.Operational loss of Rs.1027 crores over

the last year.

BPCL even filed a court case for recovery on unpaid dues.

Their cheque of Rs. 151 crores bounced.Landing charges in Bangalore and

Hyderabad airports.

No assets that it can sell or mortgage.The bankers in lieu of converting Rs.750

cr. to equity, got 23% stake in the airline.Hence the banks lost about 300 cr. in this

transaction.Kingfisher’s total debt was Rs 8,414 cr.

Measures to avoid vanishes

SEBI should appoint their own auditors.

Director Identification Number.

The RoCs scrutinize the Balance sheets.

Mandatory for the professionals personally visit the premises.

Conclusion

• These companies are truly brands. Their walk-out had literally shaken up the economy.

• But now SEBI has become much more cautious and is trying to help the companies work efficiently.

• Only the plantation companies were left out without any scope to retain in the market.