)
Indian units of Deutsche Asset Management and BlackRock Inc are among investors who avoided losses by dumping stakes in Manappuram Finance Ltd before the the lender this week plunged 31 per cent.
The finance company, which accepts gold as collateral, had its biggest two-day drop since May 2003, after it told one brokerage on March 18 about a potential loss, citing a slide in the prices of the yellow metal. It informed a wider community of investors the following day. The company made a detailed exchange filing after trading hours yesterday. Deutsche Asset sold all the 1.25 million shares it owned in the company as of February 28, according to data compiled by Bloomberg.
The uneven disclosure of information prompted a unit of Banco Espirito Santo SA, Portugal's biggest publicly traded bank, to lower Manappuram's corporate governance rating to the lowest level and recommended investors to sell the stock. Bank of America Corp's Merrill Lynch unit slashed the price target by 58 per cent yesterday. The Indian lender said declining gold prices may trigger an increase in defaults and forecast a Rs 50 crore ($9.2 million) loss in the quarter.
"Corporate governance is a bigger concern for the stock, as it will be very difficult to believe in the management," Nidhesh Jain, a Mumbai-based analyst with Espirito Santo Securities Ltd said in an e-mail response. Manappuram had earlier given a different explanation about a decline in yields on loans and profitability in the third-quarter to disparate market participants, Jain said.
Rated red
Manappuram is the second company to be rated red on the disclosure score by Espirito Santo among the 34 finance firms and banks it tracks.
The company first spoke to Ambit Capital Pvt seeking help in "guiding the market about fourth-quarter results and future outlook," Manappuram said in a filing to exchanges yesterday. "The statement that the company has selectively shared some information with some investors is false and baseless."
V P Nandakumar, managing director and chief executive officer of Thrissur, Manappuram, didn't answer four calls made to his mobile phone and didn't respond to a text message.
DSP BlackRock Investment Managers Pvt sold 158,168 shares, data as of February 28 show. Goldman Sachs Asset Management dumped Manappuram in November, the data show. Linus Chettiar, a spokesman for Deutsche Bank AG in Mumbai, said the company wouldn't comment on why its asset management unit sold Manappuram's shares. Arun Rajendran, a spokesman for DSP BlackRock, did not answer a call to his mobile phone after office hours.
The asset management unit of Swedish bank Skandinaviska Enskilda Banken AB bought 1.1 million shares of Manappuram, according to a December 31 filing. DNB Asset Management AS purchased 500,000 shares last month, the data show.
In August, the company passed a special resolution by "a show of hand" to change its Articles of Association, according to exchange filings. Institutional Investor Advisory, a proxy adviser, had asked investors to reject the amendment that gave four investors the right to veto proposals in shareholder meetings and decide whether the founders could sell their stake.
"There is an expectation from a listed company that its information dissemination would be more even-handed," Amit Tandon, managing director of Institutional Investor Advisory, said in an interview.
"One of the problems with the mid-caps is that sometimes they are closer to one set of investors."
The company, which had outstanding gold loans of more than Rs 10,000 crore as of December 31, may lose part of the interest due on it because a drop in prices of the yellow metal has reduced the value of the collateral, the company said in an analyst conference call on March 19.
The security for loans amounting to Rs 1,500 crore disbursed in the three months to December 2011, may not be adequate to cover the interest accrued on it due to a high loan to value ratio, it said in the exchange filing.
"Fundraising for lending is anyway constrained for these gold loan companies," Vibha Batra, New Delhi-based senior vice president at Icra Ratings Ltd said by phone. Gold in India has dropped 3.4 per cent this year.
