MUMBAI, May 16: CRB Share Custodian Services Ltd, the trustee of CRB Capital Markets' fully-secured CRB bonds sold in the early part of 1996, is unable to create trust and security to cover the aggregate face value of the instrument.

Reserve Bank of India (RBI) has stipulated that the company will have to get a central bank clearance for creation of any charge on the assets of the company, including the charge in favour of the trustees, CRB Share Custodian Services.

Investors to the private placement of the Rs 18 crore, 19 per cent CRB Bonds are now left holding virtually junk paper. These bonds offered an upfront incentive of about 2 per cent, taking the effective coupon rate to 22.5 per cent, sources said.

A letter signed by CRB Share Custodian Services managing director NM Rampuria to the bond-holders states: "We have been closely following up with the issuers in matters relating to the creation of trust and security to cover the aggregate face value of the issue and have already forwarded the draft legal documents prepared by our solicitors for approval and execution by the issuers.

"This has, however, not been completed yet due to certain formalities to be completed with at the issuer's end."

"As a consequence of the recent notification of the Reserve Bank, the company will now get clearance of the central bank in the matter of creation of any charge on the assets of the company," the letter further states.

Market sources, however, pointed out that CRB Share Custodian Services, the registrar and share transfer agent for CRB caps and CRB Corporation, has snapped its ties with the company.

The 1995-96 balance sheet of CRB Caps does not disclose any bond offering made by the company. This means that these bonds must have been floated in 1996-97, for which CRB Caps balance sheet is not available.

During 1997-98, CRB Corporation also had floated its Power Bonds (notified amount remains unknown) at a high coupon of 19 per cent, and offering investors an upfront incentive of 1 per cent.

The effective interest rate on the CRB Power Bonds was about 30 per cent as it had the benefits of Section 88 of the Income Tax Act. Investors also had a `put' option facility after a year. An early exit on CRB's Corps Power Bonds promised investors a return of 16 per cent.

Sources said that the redemption of the CRB bonds would be difficult as Reserve Bank of India has already directed that the company, CRB Caps, should not sell, transfer, create charges or mortgage its assets without RBI nod.

Meanwhile, thousands of depositors thronged the CRB group's headquarters in Mumbai seeking to know when their dues, principal and interest, would be settled. Post-dated interest warrants issued by CRB Caps to its depositors have all bounced.

Investors blamed the Reserve Bank as well as the Securities and Exchange Board of India (Sebi) for not taking proactive action and guarding their (depositors and investors) interests.

Banks and institutions were also charged by angry crowds for giving liberal fund-based support to the CRB group. "They have all colluded to cheat depositors," cried an irate depositor who had put in his provident fund proceeds in CRB Caps fixed-deposit scheme.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.