MUMBAI, July 9: Has Times Guaranty Financials got a SEBI "in principle" nod to set up an asset management company (AMC) or not? While Times Guaranty officials say they have, SEBI officials say they haven't. Times Guaranty, meanwhile, is going ahead with its plans to set up the AMC which will manage its mutual fund schemes. Interestingly, SEBI has not issued a denial to a story which appeared in The Financial Express on Tuesday stating that SEBI had given its approval for the AMC.

When contacted, Raman Kaickar, vice-chairman, Times Guaranty Financial, said the company was going ahead with its plans to float an AMC which will have an equity of Rs 15 crore. "We got the in-principle approval to float an AMC from SEBI last year. We have been negotiating with various foreign companies for a tie-up," Kaickar told The Indian Express.

An in-principal approval to set up an AMC is a prelude to float a mutual fund scheme which is nothing but allowing the AMC to prudently invest the public money raised through various schemes so as to give sufficient returns to the subscribers. Once the AMC is set up, it will have to approach SEBI once again for registration and launching schemes thereafter.

However, contradicting Kaickar's statement, a senior executive director of the SEBI claimed that the ``SEBI has not given any approval to Times Guaranty for an AMC.''

What is shocking -- if SEBI has indeed given the approval -- is that Times has just declared a massive loss as a result of which its net worth has almost fully eroded. After providing for its huge non-performing assets (NPAs), the company's net worth is down to Rs 6 crore (it was Rs 75 crore earlier). Crisil, in fact, downgraded the company's fixed deposit programme from "FA+" to "FA-" in June 1996. It is expected to come out with a fresh rating soon.

Times Guaranty, which came out with a public issue at a premium of Rs 60 per share (total Rs 70 per share) in August 1994 is now quoted at Rs 7.50 on the Bombay Stock Exchange. The company had projected a net profit of Rs 23.08 crore for the year 1996-97 in the offer document for the public issue but ended up with a net loss of Rs 43 crore. Around 25 per cent of the Rs 18 crore equity is held by public.

The confusion over the "in principle" approval comes at a time when the dust has not even settled over the CRB controversy and SEBI's alleged role in giving a clean chit to CRB to obtain a bank licence. One of the reasons for the CRB scam in which thousands of investors were defrauded by C R Bhansali was the negligence on the part of the RBI and SEBI.

CRB Capital Markets is now under liquidiation and CRB Mutual Fund is under an administrator appointed by the High Court. CRB Capital, which was issued a banking licence, was given higher rating by rating agenices before the group collapsed. It is apparent that the SEBI guidelines for floating mutual funds are lax and vague and the regulator doesn't consider various parameters like financial and promoter track-record and credit rating.

Kaickar said the setting up of an AMC is part of the company's five year business plan to be present in three areas of financial market - investment banking where it invests its own funds, broking business as an intermediary and allocation of resources through an AMC.

According to CRISIL which downgraded the fixed deposit programme of the company last year from FA+ to FA-, about 19 per cent of the funds were deployed in the short term ICD investments. While the FA- rating also implied sufficient security in repayment of principal and interest, it also implied downgrading of safety regarding timely payment of interest and principal.While higher growth has been recorded in the lease/hire purchase business in three years upto March 1995, there has been a deterioration in the asset quality, Crisil said. ``Tight liquidity and lack of proper system for monitoring asset quality on a continuous basis have led to a deterioration in the quality of the portfolio. The company had faced problems in recovering short term ICD loans in the bills discounting portfolio. There have been losses in the investment portfolio also consequent to volatile conditions in the capital market,'' Crisil said while downgrading the company last year.

It is hoped that SEBI will come out with a formal statement on whether or not Times Guaranty has been given an "in principle" approval to set up an AMC. It would be tragic if investors sunk in their funds in good faith, only to be told later that no approval was in fact given.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.