About 700 listed firms vanish from regional exchanges

A few skeletons are likely to tumble out of the cupboard with the end of the country’s regional stock exchanges -- among other things, in the form of what could be the largest-ever case of corporate disappearances in India.

A Business Standard analysis of corporate affairs ministry records and data from eleven regional exchanges reveals around 700 listed companies have likely vanished, without a trace of these entities at their registered addresses -- many times more than the 87 currently identified as ‘vanishing companies’ in official records.

The exchanges, too, have received no correspondence from these companies for a long time.

According to investor association estimates, the total value of the ‘vanishing companies’ could be in excess of Rs 29,000 crore (Rs 290 billion).

‘Vanishing companies’ are those listed entities that have raised money from investors through initial public offerings and then disappeared.

The corporate affairs ministry’s coordination and monitoring committee, which has representatives from the government, the Securities and Exchange Board of India and the Reserve Bank of India, has been monitoring the situation.

In the past two decades, there were no new instances of vanishing companies in the country.

But according to the minutes of the previous CMC meeting, the chairman of the committee noted the number of such companies was likely going up significantly, with a majority of new instances from regional stock exchanges.

The minutes said there were 2,397 companies that defaulted in filing their balance sheets appropriately.

Of these, 1,012 were listed on BSE or the National Stock Exchange (NSE), while the rest (1,385) were from regional bourses.

More than half the companies listed on either BSE or NSE could be ‘vanishing’.

“The chairman observed the 508 listed entities that had been delisted appeared to be dubious and most (if not all) of these would turn out to be ‘vanishing companies’,” said the minutes of the meeting, held in July last year.

Even if one assumes the proportion of similarly-affected companies among regional exchange-listed ones would not be higher than the proportion for firms listed on the two national bourses, the number of ‘vanishing companies’ on regional stock exchanges would come to around 700.

But the number could, in fact, be higher than that.

Most regional exchanges have moved to shut shop since last year’s CMC meeting and were asked to provide information on companies listed on them before exiting. An analysis of data from 11 regional bourses shows 3,669

listed companies are not compliant with the listing agreement.

The sample excludes eight existing regional exchanges for which data on non-compliant companies were not available.

Non-compliance indicates the firms did not adhere to requirements like filing financial statements with the exchanges concerned. How many of these would be classified as ‘vanishing’ would depend on whether or not these companies are traceable at their registered offices.

Virendra Jain, founder of Sebi-registered investor association Midas Touch believes a significant number of these non-compliant companies are likely to fall in the ‘vanishing’ category.

“Around 50 per cent of the companies are likely to be vanishing,” he says, suggesting the number of vanishing companies could be more than 1,800.

Midas Touch had earlier written to Sebi on the issue of companies exclusively listed on regional exchanges and how their closure, effective from May this year, would affect investors in these companies.

“By a conservative estimate, the market capitalisation of the 4,644 companies exclusively listed at regional stock exchanges would be above Rs 2,00,000 crore (Rs 2,000 billion),” the association had said in its letter to Sebi.

Going by this figure, the combined value of ‘vanishing companies’ could be around Rs 30,000 crore, if these are 700-odd; and close to Rs 80,000 crore (Rs 800 billion), if around 1,800 companies are ‘vanishing’.

In 2012, the regulator had asked all exchanges that did not meet the criteria of Rs 100 crore (Rs 1 billion) minimum net worth and Rs 1,000 crore (Ra 10 billion) volumes to close down by May 2014.

The move led to closure of many regional stock exchanges -- 21 of those existed then.

Four regional exchanges have already exited business since, while 10 others are in the process of winding down.

Sebi has said it will ask the others to also exit compulsorily.

As for the 4,000-odd companies listed only on regional exchanges, Sebi had said these could migrate to the national exchanges; none has done that so far, according to spokespersons for exchanges.

The regulator had asked companies to classify errant companies as ‘vanishing’, but, apart from the estimates mentioned, there is no official word on how many firms actually fall in this category.

A spokesperson for the Madras Stock Exchange said a list of ‘vanishing companies’ had been sent to the registrar of companies for action.

Emails on the issue sent to the other regional exchanges and the regulator did not elicit any response.