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Listing is a double-edged weapon and Caesar’s wife too

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While the listing has been the most important reason for the modern corporations’ success, it sometimes disenchants even the already listed companies so much so that one gets to witness delisting not infrequently.

Listing is a double-edged weapon and Caesar’s wife too
Jay Chaudhry, the CEO and founder of Zscaler, a cybersecurity company, was ranked 10th richest Indian by IIFL Wealth Harun India Rich list 2021 with a net wealth of Rs 1,21,600 crore. As much as 85 percent of the wealth was attributed to the US-listed Zscaler alone.
Chaudhry hit the pay dirt on the back of work-from-home norm taking roots in the Covid era with value-added resellers giving topmost importance to cyber security. American listing is what catapulted him sky-high.
Cut back to 2009. Ramalinga Raju the founder of Satyam Computers must have rued his decision to go for the prestigious American Depository Receipts (ADR). For, while he revelled in the sunshine of the prestige it begot his company, it cooked his goose when the American investors smelled something fishy in his accounts and voted with their feet.
What followed was his mea culpa and India’s Enron moment. The relatively docile Indian investors rushed to dump Satyam shares thanks to the vigilance shown by their American brethren. Listing especially in an enlightened market can be a chastening experience.
It is not as if the prestigious ADR listing alone is a double-edged weapon. The domestic BSE and NSE listing also hold the same grim message even though fly-by-night operators and vanishing companies have reduced IPOs to an easy get-rich-quick scheme. All thanks to our liberal IPO norms that permit even loss-making companies to inveigle the investors especially the small ones.
The Finance Minister Nirmala Sitharaman recently gave dark hints (for PSBs) that they may have to hereafter access funds from the markets. This must have been music to the taxpayers what with recapitalisation every now and then. And write-offs of NPAs unwittingly making them the scapegoats of the most licentious and permissive borrowing regime that often makes bank borrowings another get-rich-quick scheme.
Raising funds from the market by floating bonds can be rewarding as issuers of commercial papers (CP) have realised. Issuing bonds in foreign markets especially in the US has also proved extremely rewarding for profitable and efficient banks like HDFC but PSBs are a different kettle of fish.
In the first place, there may not be enough takers for their bonds, given their unacceptably high NPAs. And secondly, there is a risk of the bonds sooner than later getting the junk status at the first whiff of continuing callousness and inability to rein in borrower indiscipline.
While the listing has been the most important reason for the modern corporations’ success, it sometimes disenchants even the already listed companies so much so that one gets to witness delisting not infrequently.
Cadbury India did it about two decades ago. Vedanta the metals and minerals major too did it on the Indian bourses. The fear of competitors getting to know trade secrets thanks to the copious disclosure requirements entailed by listing is the ostensible rationale. But the unstated one is the desire to hog the entire profits for a select band of investors.
Small wonder delisting is criticised as an act of kicking off the ladder once a company has made it to the top. Public investors willy-nilly have to dismount the bandwagon once delisting happens.
Profitable private companies are not particularly enamoured of listing. Zerodha is India’s popular share trading app is a private company. And it has consciously chosen not to seek the exalted listed status.
Listing, while enabling the raising sums, inevitably spells a steep reduction in earnings per share (EPS). Especially, if the enlarged capital is not put to use for expansion.
Strict insider trading regulations can also be a dampener for law-abiding promoters. Timing of the market in the manner of self-fulfilling prophecy is strictly speaking possible only for the insiders.
Indeed, buying or selling with the help of price-sensitive information not available to the public (insider trading) has been the bane of the Indian market.  So the wily ones among the promoters tribe make their pile from trading in their own shares on the sly through devious means till caught with their pants down which is seldom in the Indian context.
The ranking of the rich in the pecking order on the touchstone of the market value of shares held by them is not entirely rational as market quotations are volatile and mercurial so much so they can catapult a newcomer skyward just as it can bring down an established player with a thud.
It also irrationally makes share quotations the lone measure of riches. There are land sharks and jewellers quietly harbouring considerable wealth that does not hog the limelight much less, is talked about sotto voce.
They do not consider it infra dig to be left out of the roll of honour.  Instead, they must be laughing up their sleeves at the anonymity conferred to them and their (shady?) businesses.
— S. Murlidharan is a CA by qualification and writes on economic issues, fiscal and commercial laws. The views expressed in the article are his own. Read his other columns here.
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