The central government on Tuesday issued a draft order to merge scam hit-National Spot Exchange with listed parent Financial Technologies India Limited to speed up the recovery of dues. The merger, if it goes through, would mean FTIL will have to shoulder the liabilities of NSEL, which owes around Rs 5200 crore to investors.
The announcement sent Financial Technologies shares crashing 20 percent to Rs 169, with trading being frozen after there were only sellers in the stock.
Under the proposed merger, the entire business of NSEL will be transferred to Financial Technologies. The merger will be effective with reference to the FY14 balance sheet, since the scam came to light in July last year.
The boards of the two companies and the creditors have been asked by the government to provide suggestions over the next two months.
Understandably, FTIL is opposed to the idea of the merger. NSEL is a 100 percent subsidiary of FT and so far FT had been maintaining that it was not responsible for the liabilities of its arm. Last month FTIL had issued a statement saying that the merger would hurt the interests of over 60,000 of its shareholders at the expense of around 13,000 clients of NSEL who had lost money.
In 15 months since the Rs 5600 crore scam broke, less than 10 percent money has been returned to investors even though many defaulters and senior NSEL officials have been arrested and their properties seized.
According to an agency report, barely Rs360 crore of dues from defaulting members out of the total outstanding amount of Rs5689 crore had been recovered till August this year.
"The Commission has noted that depletion of human resources, lack of financial resources and weak organisational structure at NSEL has posed a major impediment in the recovery process and consequently contributed to negligible progress in recovery of dues by NSEL from the defaulting members," the Forward Markets Commission had said in its circular last month while calling for the monitoring and auction committee (MAC) to be disbanded.
FTIL founder Jignesh Shah had to spend three-and-a-half months in jail between May and August this year after being charged with criminal misappropriation, forgery, criminal conspiracy and under the Maharashtra Protection of Interest of Depositors Act for duping investors.
FTIL shares had plunged from Rs 550 to a low of Rs 105 in August last year within two trading sessions after the scam at NSEL came to light.
In a crippling blow to the company, the Forward Markets Commission (FMC) in December last year ruled that FTIL should reduce its stake in group company and India's number one commodity bourse to 2 percent from 26 percent, as it was unfit to hold stake in a recognized bourse.
Two months back, FTIL completed its exit from MCX trough a mix of open market sales as well as a 15 percent sale to Kotak Mahindra.
Financial Tech stock price
On October 21, 2014, Financial Technologies closed at Rs 169.65, down Rs 42.4, or 20 percent. The 52-week high of the share was Rs 403.60 and the 52-week low was Rs 146.60.
The latest book value of the company is Rs 522.91 per share. At current value, the price-to-book value of the company was 0.32.
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