14.12 ndian onom
For debenture-holders the ‘option’ to convert Corporate Affairs (both the Sahara firms
debenture into shares is profitable and/or safer which issued OFCDs are unlisted). But
once either of the following situations are correct: SEBI contended that it can regulate even
(i) The firm is likely to make high profit (so an unlisted firm if it issues OFCD, as
the shareholder can earn higher dividend), the SEBI Act, 1992 contains the term
or OFCDs. There was really some regulatory
confusion. This is why the government
(ii) Firm’s share-price is likely to rise in the
added a ‘clause’ in the recently passed
share market (profit can be made by
Companies Act, 2012 which gives SEBI
selling shares).
undisputed jurisdiction over any
But suppose the firm has weak balance sheet investment scheme involving more than
(going bankrupt), then it is better to keep hold on 50 investors whether the company is
the debenture rather than converting them into listed or unlisted. Menawhile, Sahara has
shares, because when a company is liquidated (i.e., been ordered to return the total capital it
its assets sold off), the debenture holders get primacy raised through OFCDs with an interest
over shareholders in payment. It means OFCD is of 15 per cent per annum.
a bit tricky thing and is the only suitable route to
invest in the security market for the investors who DerivAtives
have some knowledge and understanding of share Derivative is a product whose value is derived
prices, company performance, etc. from the value of one or more basic variables,
Recently, the OFCDs issued by Sahara (an called bases (underlying asset, index or reference
NBFC under regulatory control of the RBI) rate), in a contractual manner.
were in news due to some irregularities – it was a The underlying asset can be equity, forex,
simple case of certain loopholes in the regulation commodity or any other asset. For example, wheat
of OFCDs and some violations by Sahara: farmers may wish to sell their harvest at a future
(i) Actually, an OFCD issue process has to date to eliminate the risk of a change in prices by
be completed within 10 working days that date. Such a transaction is an example of a
(Sahara continued for over two years). derivative. The price of this derivative is driven by
(ii) If the OFCD is being issued through the spot price of wheat which is the ‘underlying’.
the ‘Private Placement’ route only 50 In the Indian context the Securities Contracts
individuals/ institutions can subscribe (Regulation) Act, 1956 [SC(R)A] defines
to it (Sahara issued it to over 23 million derivative to include :
people and raised over Rs. 24,000 crores). (i) A security derived from a debt instrument,
Such a tricky instruments being issued to share, loan whether secured or unsecured,
novice public was a clear case of financial risk instrument or contract for differences
irregularities. or any other form of security.
(iii) Unlisted companies do not come under (ii) A contract, which derives its value from
the regulatory control of SEBI. In place the prices, or index of prices, of underlying
they are regulated by the Ministry of securities.