Thus, framing the regulation is fine, but Sebi itself needs to set a time limit within which it will resolve the dispute, the non-resolution, or delay of which could well throw up many more incidents like the Sterlite-Indal or the Saurashtra Cement-Autoriders affairs.

Frustrated by the endless delays, Autoriders has taken thematter of preferential allotment by Saurashtra Cement (SCL) to court. The reason being that SCL has in accordance withe Sebi guidelines on preferential issues proposed a specific resolution to dilute the equity. Thus, if this resolution is approved, the earlier resolution will also be automaticaly approved, especially since the equity structure prior to the latest preferential offer stands approved. As a result, trading in shares (issued as a result of preferential allotment) cannot be kept frozen.

With the benefit of buyback available, as a defence mechanism, it will be prudent to make it mandatory for only those managements which have exercised a creeping-acquisition option (that is, at least 1 per cent of the subscribed equity capital) to be allowed to exercise either the buyback or the preferential route during the offer period.

Ideally, the preferential allotment route should no longer be allowed to hike the stake of the existing management, especially since equity dilutions hurt the non-managementshareholders. However, if this measure is not implemented, the least that can be done is to make share buyback the first plausible option. Adopt the creeping-acquisition route as the second option, and allow a preferential allotment only if the management has already utilised the creeping-acquisition route (the limit for which would obviously be the limit prescribed under the takeover code), largely because the creeping-acquisition option is far more beneficial for shareholders.

Steel industry: As a general thumb rule of business, whenever prices take a southward detour, manufacturers tend to insulate themselves from the downward risks, by moving up the value chain. But manufacturers in the domestic steel sector seem unable to do this. It is intriguing that the proportion of semis has been on the rise in India. Reflecting this trend in the domestic steel industry is SAIL's latest results, wherein the proportion of semis has risen to 17 per cent (8-12 per cent last year when the various SSI units forfinishing products were still in existence). For Tisco too, the figure of semis in production is in the range of 29-34 per cent, which is far higher than the levels in 1995-96.

All this leads one to question the reasons for the proportionate rise in semi production. This, analysts say is owing to the closure of SSI units, which used to process the crude steel into various end-use applications like bars and rods. However, the closure of SSIs prompted domestic companies to invest a lot of money into doing these activities in-house.

The drop in steel prices has meant that it has become unviable for converting the semis into a finished product in-house, which is basically owing to the in-house activities, resulting in far greater overheads for the company.

Given this problem, analysts suggest that companies as an alternative should consider hiring out these activities on a contractual basis. For one, they can recover part of the fixed cost spent on finishing mills, and secondly, they will be able to sellmore value-added products without the hassles of producing it in-house. It will also help steel manufacturers reduce their individual variable costs. Thus, unless both SAIL and Tisco improve upon their sales of finished products, operating margins could remain pressurised.

Telecom: News reports indicate that the Telecom commission will veto any kind of revenue-sharing arrangement while restructuring the licence fee for private telecom companies. This is contrary to the government's earlier policy announcement, pertaining to a revenue-sharing arrangement for basic telecom circles in the second round of bidding. Logically, revenue sharing should allow operators to break even much earlier, rather than be saddled with huge licence-fee payments. But possibly, the burgeoning fiscal deficit and the centre's budgetary estimates would go haywire if huge concessions, or a moratorium, is provided in lieu of licence fees.

A possible solution could be the provision of a relief package that will reduce thelicence-fee burden on telecom companies in the first five to six years without changing the net present value (NPV) of the bids made by these firms during the tendering process.

News reports also indicate that the government has decided to convert the Telecom commission into the first board of directors of Indian Telecom (the proposed rechristened version of DoT). However, this belies the motive behind corporatising DoT, which was to reduce government control. To put it simply, privatisation should have been the goal towards which corporatisation of the entity is directed. Moreover, the entity will be geared to garner funds once a balance sheet is put in place, and also operate its 21 circles as independent profit centres.

With contributions from Urmik Chhaya, Manish Saxena and AG Krishnan