What next after NSEL declared payout.....a detailed analysis.
MillindMadhani
What Next after NSEL declared the pay out of 92.13 crores on 20 Aug 2013?
Shortfall in the payout amount of 20 August gust 21, 2013, has raised doubts in the minds of investors.
We carried out a detailed analysis from published data to find out the possibilities of recovery and safety of the amount of investors.
We find that:
1. 48% of the amount of Rs. 2663 crores is recoverable under the given payout schedules. The stock value towards the same is Rs. 3016 crores
2. 17% of the amount of Rs. 970 crores is recoverable under the auction proceedings filed against one of the 10 defaulters. The stock value is Rs. 938 crores.
3. Total 65% of the amount of Rs.3633 crores is on track for recovery.
4. Balance 35% of the amount, amounting to Rs. 1940 crores is having collateral in form of stock of Rs.2086 crores. Stock is in excess of recoverable amount.
Please read detailed analysis, hereunder:
● Out of 25 borrowers, 15 borrowers have paid their dues, they can be called as good debtors, whose obligation is 48% of the TOTAL outstanding amount as they have paid the 1st installment
● Among good debtors:
o 5 of them ended up paying over and above their committed installment. Out of total receivable of Rs. 320 crores from them, they have paid Rs. 42.63 crores, which is average 13% of their total outstanding, as against average market receipt of 1.65%
o 10 of them ended up paying lower than their committed installments. Against required amount of Rs.101 crores, they ended up paying Rs.50 crores,leaving a gap of 51 crores. Their total receivable amount is Rs.2343 crores or 42% of the total outstanding amount. The value of their stock is Rs. 2627 crores as against outstanding of Rs.2343 crores, leaving an excess stock over recoverable amount.
This sounds positive and comfort provider on the prospects of recovery from good debtors.
● Among bad debtors:
o 10 borrowers are with receivable amounting to Rs. 2910 crores, which is 52% of the total receivables by the exchange. Out of the 1st installment due from them of Rs.57 crores, they paid NIL
o The collateral in form of stock is amounting to Rs.3024 crores is more than the recovery amount
o Though they haven’t paid, their stock value is more than the recovery amount
Thus, can it be said that:
1. 60% of the borrowers are good debtors and their amount of Rs.2663 crores should eventually come back to the investors. This is 48% of the total sum of money belonging to investors.
2. It also means that the value of stocks amounting to Rs.3016 crores of these borrowers is there in warehouse. It may be safe to assume that because they had stock in warehouse, they paid up their 1stinstallment.
3. Having paid 3.5% of their total outstanding in 1stinstallment, their intent for payment is clear and in turn they are admitting their liability to the exchange, which is Rs.2663 crores or 48% of the total amount.
4. To the market, this should be a comfort factor and a sigh of relief, also because it conveys that warehouses are not empty and stock is intact in the systems. SGS, the Swiss agency, when they value stocks, it will be further validated.
Coming to defaulters or Bad Debtors:
1. Assuming that Rs. 2910 crores of 10 borrowersgoes under litigation, it would be 52% of the sum receivable, which may go under dispute and the delayed period of recovery
2. As per the actions initiated by NSEL and made known, Rs.970 crores, i.e. 17% of the total outstanding amount will be recovered by auction of stocks and assets held by the exchange.
3. It is further known that 1 borrower with 5%exposure amounting to Rs. 252 crores; the default proceedings have been initiated by the exchange for recovery under legal course.
Officer on Special Duty (OSD) Mr. P R Ramesh must be having the 1st task of addressing this issue and file legal suit against defaulters, impounding their assets for recovery of dues
Given the analysis,
■ Can it be concluded that 52% of the amount or a sum of Rs 2910 crores of outstanding amount, is having warehouse stock of Rs. 3024 crores will be under recovery process and should come back to investors, eventually!
■ Question is, if the stock is in warehouse, can it be liquidated ASAP? Answer should be yes, because these borrowers have defaulted and authorities have all the more reasons to liquidate their stocks and make payments good to investors.
■ In case the stock value is inadequate, which could go under litigations for recovery and would be time-consuming process. However, the same would be established post SGS valuation of stocks.
■ The trail would easily establish if the bad debtors have syphoned off the amount from the system and law would take its own course thereafter, though with delayed time effect, unfortunately.
■ Litigations would be a death knell for borrowers, as under CIBIL, such individuals would be permanently barred from banking system even for credit cards. Thus, it may not be an easy escape to anyone.
■ Assuming that CBI and EOW must have established the vigil on defaulters by now under track and trace systems of those individuals and their calls!
While on the subject of faster recovery dues, it also brings up the point of releasing commodity for processing to those borrowers who are good debtors, as they may want to have an access to the commodity for processing and eventually selling to their customers.
■ Only when they bill it, they could recover their dues from customers and make payment good to exchange / investors.
■ It is thus expected that authorities under strict supervision and controls allow the outward movement of commodity to them; also considering the fact that delays here could result in bad debts, as agro-commodities are perishable in nature
■ Given the requirement of the situation, good debtors are protected and most importantly, prevented from turning bad.
Thus, it is very important that actions are taken without delays, as they are required to be taken in the best interest of investors and all stakeholders.
Finally,
FMC and ministry of consumer affairs (MCA) must exercise all its powers to push the borrowers to clear their debts without further loss of time. It is imperative that examples are set today for future safety and growth of Indian markets. Commodity markets are at nascent stage in India and they have a long way to go. Investor being an important part of any markets must be protected.
Actions of removing management team of NSEL should help in expediting the process of recovery of dues; though late in the day, this move should result in desired outcome.
We have analyzed the situation with facts and figures obtained from NSEL’s website, which should help interpret the situation and bring clarity on safety of amount to investors and also actions of authorities in the subject matter.
Your feedback is welcome for strengthening these views, for further.
Thanking you,
Team KRChoksey Commodities
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