The end of the regional stock exchanges may throw up a few skeletons. Namely, in the form of what could be the largest ever case of corporate disappearances in India.
An analysis of records from the Ministry of Corporate Affairs and data from eleven regional bourses shows that there are likely to be around 700 listed companies who have vanished, with no trace of the company at its registered address and the exchanges receiving no correspondence from the companies for a long time.
The total value of these vanishing companies could be in excess of Rs 29,000 crores, according to an analysis by Business Standard based on investor association estimates.
The number of vanished companies is a manifold increase over the 87 companies which are currently identified as ‘vanishing,’ according to official data. Vanishing companies are listed entities which raised money from investors through initial public offers, and then disappeared without a trace. The Ministry of Corporate Affairs’ Co-coordination and Monitoring Committee (CMC) has been monitoring the situation, and includes representatives from the government, as well as the Securities and Exchange Board of India and the Reserve Bank of India.
There have been no new vanishing companies in nearly two decades.
The minutes of the previous CMC meeting show that the chairman of the committee noted that the likelihood of the number of such companies going up significantly, with the majority of new entrants likely to be from regional stock exchanges.
The minutes said that there were 2,397 companies which defaulted in filing their balance sheets appropriately. Of these, 1012 were listed on the BSE or the National Stock Exchange, with the remaining 1,385 companies being from regional exchanges. More than half of the national exchange-listed companies could be ‘vanishing’.
|Missing in Action|
|Regional Stock Exchange||Number of listed companies||Non-compliant|
|Source: Regional Stock Exchanges|
|*For bourses with data available on non-compliant companies|
“Chairman observed that the list of 508 listed companies which had been delisted, appeared to be of most dubious companies and most (if not all) from this category will turn out to be ‘Vanishing Companies,’” said the minutes of the meeting held in July last year.
Even assuming that only the proportion of companies on regional exchanges be similarly affected would not be greater than on national-exchanges, this still throws up around 700 vanishing companies on the regional exchanges.
The number may in fact be even higher.
Most regional exchanges have moved to close shop the CMC meeting last year and were asked to provide information on companies listed on them before exiting.
An analysis of data from eleven regional exchanges threw up 3,669 companies which are not compliant with the listing agreement. This excludes eight other existing exchanges from which data on non-compliant companies was not available. Non-compliance indicates that they have not been adhering to requirements like filing financial statements with the exchanges. How many of these would be classified as ‘vanishing’ would depend on if the company is traceable at its registered office.
Virendra Jain, founder of Sebi-registered investor association Midas Touch believes a significant number of the non-compliant companies are likely to fall in the ‘vanishing category.’
“Around 50% of the companies are likely to be vanishing,” he said, suggesting that the number of vanishing companies is over 1,800.
Midas Touch had written to Sebi on the issue of companies exclusively listed on regional exchanges, and how their closure effective from May would affect investors in the companies.
“On a conservative estimate, the market capitalisation of 4,644 companies which are exclusively listed at regional stock exchanges would be above Rs 2,00,000 crores,” said the letter.
This would place the value of the 700-odd vanishing companies at around Rs 30,000 crores, and close to Rs 80,000 crores if the companies is 1,834.
The regulator in 2012 had asked all exchanges who did not meet a minimum net worth criteria of Rs 100 crores and have volumes of Rs 1,000 crores to exit by May 2014.
The move has resulted in the closure of a number of regional stock exchanges, twenty one of which existed in addition to the BSE and the NSE. Four regional exchanges have already exited, and ten others are in the process of doing so. Sebi has said that it could compulsorily ask the others to exit as well.
There are estimated to be over 4,000 companies which are listed only on these exchanges. Sebi had said that they could migrate to the national exchanges, but none have so far done so, according to exchange spokespersons. Sebi had asked companies to classify errant companies as ‘vanishing,’ but other than the estimates above, there is no official word on how many in total actually fall into the said category.
A spokesperson for the Madras Stock Exchange said that a list of vanishing companies had been sent to the Registrar of Companies (RoC) for action. Emails sent to the other regional exchanges and the regulator on the issue did not receive a reply.