When Prof. Shivanand Mankekar shelled out a princely sum of Rs. 51.30 crore to buy a huge chunk of 13,50,000 shares of Financial Technologies in March 2014 at Rs. 380 each (in the name of his wife, Laxmi Mankekar), he set investing circles agog with excitement. What got investors most intrigued is the fact that the Prof. put his weight behind FTIL even though his peers like Prashant Jain of HDFC MF backed MCX.
Prashant Jain was in fact way ahead of everyone else. As far back as in August 2013, when the news of the NSEL scam had just broken out and there was heavy dust in the air, Prashant Jain rushed in to scoop up a chunk of 3,06,000 shares of MCX at the bargain basement price of Rs. 293.
Subsequently, in October 2013, when the dust settled a bit, Ankur Shah of Value Investing India Report conducted a brilliant analysis of why MCX was a great buy. After a meticulous study of facts and figures, Ankur Shah argued that MCX did not face any potential liabilities as “there is no direct link between NSEL and MCX”. He recommended a buy on the basis that “the main fallout from the NSEL crisis for MCX was reputational as opposed to any financial or legal liability”. At that time, MCX was quoting at Rs. 446 and Ankur confidently predicted a fair value of Rs. 727 for the stock.
The interesting point is that the analysis that Ankur Shah made about MCX, namely, that there is no “direct link” between it and MCX and that it did face any “financial and legal liability” could not be said about FTIL. FTIL, as the parent company with a 99% holding in NSEL and 26% (then) in MCX, was directly in the line of fire. As subsequent events held out, FTIL & its promoter, Jignesh Shah, were declared “unfit” to hold shares in MCX and were asked to divest their shareholding in favour of Kotak Mahindra Bank. Jignesh Shah was also subsequently arrested.
The latest development in the form of the (draft) order of the Government directing the amalgamation of NSEL into FTIL so as to allow “satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEL” makes the situation absolutely untenable for FTIL’s shareholders. NSEL has staggering liabilities (estimated at Rs. 5,500 crore) and it is unfair to ask FTIL’s shareholders to ask to foot the bill.
So, it is perplexing why, to begin with, Prof. Shivanand Mankekar chose FTIL instead of MCX. Surely, a visionary like him would have foreseen all these potential problems and steered clear of them. At the CMP of Rs. 179 for Financial Technologies, the Prof. is staring a loss of nearly 50%+ of his investment. To add insult to injury, MCX, at the CMP of Rs. 788, is up about 50%+ from that date.
We will have to wait to see how Prof. Shivanand Mankekar handles this situation. Will he just dump the shares (as he did with Wockhardt, when it faced the FDA crises) and book the loss or will he hold on to it in the hope that there will be a dramatic turnaround to its fortunes. There is a lot of opposition (1) (2) to the FTIL-NSEL proposed merger and it is possible that the Government may rescind the move. If so, that will provide some respite to the Prof. and the other beleagured investors of FTIL.
Stock Market geniuses too make mistakes. The Great Warren.Buffet lost 2 billion U.S Dollars in just 2 days and our very own Professor Shivanand.Mankekar losing approx Rs 25 crores is no big deal in the long term of “BILLION RUPEES INVESTMENTS”.
Background:
FTIL is a TECHNOLOGY company which specializes in operating technology-centric, next-generation financial markets and NSEL is a Spot Exchange Market.
Holdings:
FTIL holds 99% of NSEL and however FTIL Promoters hold only 45.63 % of FTIL and the rest 54.37% of FTIL is held by GENERAL PUBLIC, FIIs & INSTITUTIONS; now going by that the GOVT ruling of MERGING NSEL with FTIL does not make any sense as 54% of innocent investors have to take the brunt of 5000 CRORES liability of NSEL.
THIS MERGER IS AGAINST COMPANY LAW AND GOVERNMENT WILL LOSE THE CASE IN COURTS.
I still think Prof. Shivanand Mankekar has not done a BAD job by investing in FTIL. However it is the GOVT which did a VERY BAD job to try and MERGE FTIL WITH NSEL.
FTIL – JIGNESH SHAH is still a good company having operations spread across Africa to Asia.
My 2 Cents
Bhs
Govt has done his order only when required. I dont think its a bad either.
FTIL knew it when fraud was under development hence it is liable to pay debt of NSEL.
Court won’t entertain such cases which are against mass public interest and in this case debt is huge.
If you remember Satyam case, it was ordered by Gov only.
Of-course courts will decide the fate of FTIL, but have to wait.
Satyam Case is quite different to FTIL, remember they have had to re-state accounts for 7 years retrospective and more or less then CONG government had some sense and put the company in the hands of reputed group called Mahindra.
Here GOVT acted senselessly by trying to merge NSEL with FTIL.
GOVT MANTRA should be to punish the Promoters and not the Innocent Shareholders.
Bhs
Arjun great post. Earlier this week I doubt about this website for just posting positive news but this time you proved me wrong.
Thanks for the post.
I think the FTIL-NSEL merger is going to happen and should happen. No court in the world is going to allow fraudulent promoters to hide behind corporate veil. The concept of limited liability is to reduce risk of enterprise and not to encourage promoters to do fraud and get away with it.
FYI, FTIL owns 99.999% of NSEL and the entire board of directors and management of NSEL was hand picked by FTIL. FTIL has earned hundreds of crores from NSEL, which from day one was flouting the laws. All the bureaucrats that helped NSEL get the requisite Govt permissions to flout the laws are now working with FTIL. Venkat Chary who was the chairman of Forward Markets Commission when NSEL got exemption from Govt regulation is now chairman of FTIL. What a coincidence!
As per affidavit of ex-CEO of NSEL, all decisions at NSEL were being taken by FTIL CEO and CFO. The biggest defaulter of NSEL is the son in law of NSEL chairman!
It is but obvious that NSEL is nothing but alter ego of FTIL and was created specifically for fraudulent activities and to hide behind corporate veil. Huge sums of money have been paid by these NSEL defaulters as kickbacks to FTIL group companies to fund their trading losses as FTIL was itself doing circular trading through group companies to prop up the volumes on its exchanges to get better valuation. As you know it is illegal for promoter of exchange to trade on same exchange.
Also as per audit reports there are lots of unaccounted expenses incurred by MCX which as per authorities was paid to fictional entities and it presumed these are funds that were siphoned off by Jignesh Shah and his uncle (who happens to be auditor of NSEL) and used to pay bribes to Govt officials.
Why would anyone invest in such a fraudulent company? I think Prof. Mankekar should have done some more research on FTIL and it’s promoters before taking the plunge.
Everyone makes mistakes.