August 20 2013 – NSEL Default Reported

elb2 As has always been clear from the very start of this newsletter (and its multiple antecedents) we are daily Monday-Friday but also keen to bring significant news as it happens.

We had hoped such special bulletins would presage exciting news for investors and markets although today’s looks like, well there is an opportunity in there but first I imagine we can expect a very spirited amount of chaos and a torrent of litigation from all sides.

It appears NSEL failed to meet their target of paying Rs 174.20 crore (USD 27.21 mln) today at 1800 Mumbai time as per the settlement calendar they themselves revised last week. Instead they had managed to receive only Rs 81.13 crore (USD 12.67 mln). Barely the tip of the 900 million dollar iceberg which is outstanding and due to be repaid over 30 weeks.

There are claims of added monies clearing, cheques in the system etc but the local CNBC affiliate has asserted that the NSEL has de facto defaulted.

FTI’s shares were sold off sharply by market close to be down around 7% on the day..

Meanwhile controversy looks likely to arise as the NSEL is apparently paying proportionately what money there is to all parties owed including the Indian Bullion Market Association which is an NSEL group company.

Regulator FMC had said only genuine trading members who have cleared trades ought to be paid and any member with a default should not be part of the process and also specifically excluded all proprietary trades and those linked to NSEL Group, FTI Group and its entities.

Clearly NSEL must now be aggressive in pursuing money against defaulting clients while we can equally expect a welter of litigation against anybody associated with NSEL and that will not only endanger FTI but may ultimately have follow through impact upon MCX and MCX-SE as well as other FTI exchanges.

In an attempt to turn over a new leaf in the affair, note the story below where NSEL has today removed all its top management including the CEO. It remains to be seen whether the market will be persuaded that this is sufficient given the previously all-powerful position of Jignesh Shah at the core of the FTI empire.

NSEL Fails To Meet First Payout Obligation

PLY: Includes video of the original CNBC affiliate report.

FMC Directs NSEL To Withhold Payments To Its Related Entities
The Economic Times

NSEL Sacks MD Among Five Others
Press Release: Disciplinary action by NSEL Board on Management Team
Business Standard

The NSEL Board swung into action today by sacking its MD & CEO and top six officials including CFO Shashidhar Kotian, four vice-presidents and one manager.

According to the press note issued by the exchange, the Board decided that the current Key Management team headed by Mr Anjani Sinha – MD & CEO and other relevant heads of departments be removed from their current assignments, pending an enquiry.

Mr Anjani Sinha will cease to be the MD & CEO of NSEL w.e.f. 20 Aug 2013 and he will be a Special Officer assisting in recovery process.

This enquiry has been ordered by the Board of NSEL.

While this team has been removed from their existing responsibilities pending enquiry, they would be responsible for recovery along with Mr Sinha.

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