Need more clarity not promises in settlement: Brokers

Threatened with legal action by brokers , the National Spot Exchange (NSEL) has come out with a detailed settlement plan for its existing contracts.

Starting August 16, 2013 there will be a pay-in every Friday and a pay-out every subsequent Tuesday. The exchange plans to pay Rs 174.72 crore every week for 20 weeks and hopes to pay Rs 86.02 crore every week for 10 weeks thereafter.
Reacting to brokers’ skepticism, Anjani Sinha, MD, NSEL says that the plan was formulated based on the feedback from the buyers. “The entire mechanism involves recovering money from 24 buyers and distribution of funds to the receivable brokers. In the last 15 days, we have merged all the settlements, notified our buyers and based on that commitment from them, we have issued this schedule.”
As per the settlement calendar upto September 13, NSEL is to pay around Rs 830 crore. Regarding the commitments by 8 millers to the tune of Rs 2,181 crore, Sinha adds, “Due to the impact in the market due to reports in the media, a lot of banks have withdrawn their credit limit to these buyers. That has created a liquidity crunch and as a result those who were solvent have started to face a liquidity crunch.”
Sinha confirmed that the payment to the brokers would not include the interest of 16 percent caused by the delay in payment. “Financial close-out means that instead of delivery of physical commodity, it will be a financial settlement of the entire liabilities by the brokers who are to pay and by brokers who are to receive funds. The interest, as specified in our press note and circular, will be passed on the receivable brokers. Therefore based on when a broker is supposed to receive and when he is actually receiving the money will the interest be computed and passed on to the receivable brokers.”
Priti Gupta of Anand Rathi points out that the settlement still lacks clarity.  “The numbers doen’t add up correctly. We do not know if this clarification will come in either through the Forward Markets Commission (FMC) or the NSEL.”
On the essential data that seems to be missing from the NSEL’s plans Gupta adds, “The total doesn’t add up to Rs 5,500 crore. The plan also does not mention how the exchange proposes to implement the scheme.”
Echoing Gupta’s views, Nirmal Jain, MD, IIFL says that the settlement plan does not add upto the entire liability of Rs 5,400 crore and demands why the exchange is unable to recover the money from the stock and the inventory. “The amount does not add up and Sinha is taking responsibility whereas he has no locus standi. The promoter Jignesh Shah, should take responsibility. I think there is something amiss and to be very honest, I don’t think the investors will be satisfied with this.”
Motilal Oswal, CMD, MOFSL questions the credibility of the proposed settlement plan. “Unless the whole group or Mr Jignesh Shah assures the investors of commitment to the process, the settlement will not work. It is not clear whether the borrowers are genuine, the stock of quality and quantity has been really verified. Merely issuing post-dated cheques is of no use.”