| Fly by Night Tech Companies |
It is that time when our Markets experienced a sudden boom and gave a roller coaster ride to the investors. A company, xyz ltd, is ready to tap the primary market. The details of the company are given below.
PRE ISSUE
Company - xyz ltd
Business - Software Solutions Provider
Years of existence in the Business - 10 years
Issue size - 100 cr
Issue opens -- 14th Feb 2000
Issue closes -- 20th Feb 2000
Address -- ---
Website - www.xyz.com
Company Background
As per the Sebi Guidelines any company which comes out with a public issue should be in its business atleast for 5 years and should have financial results of atleast 3 continuous years. So, xyz co ltd took to Reverse Merging, which would mean that a small company, which is into existence for a small time, would approach a big company which has been existing for quite a long time and has financial results for the last three years and merge with it for some consideration. The company got its office space with no difficulty at all as there are brokers for this specific purpose. But it is heard that the company had to pay 4 times more than the required amount as there are many other companies which are in requirement for office space as they want to take the advantage of the Market conditions. The company did not take much time to make up its office (some chairs and tables and 2 to 3 PCs). It is very efficient in getting fake documents to represent the orders and clients of the company.
Xyz co ltd has a subsidiary in the US (what’s a software company without a subsidiary in the US). And what is this subsidiary? A small room in a house converted into an office by arranging two or three executive chairs and tables and two or three PCs. The Director of this company is the uncle of the director of the domestic company, who had been in the US for a long time and is a Green Card holder. An all family affair! But the office environment is very serious. It is a tough time for the employees (maximum 2) working here. Working hours of a clerk in this company are long and stringent as he has to send fax messages and order documents to the domestic company very frequently. Xyz co ltd has a vast International client base you see!
The company is ready to tap the primary market as its promoter feels that this is the right time to go public as the market conditions are excellent.
Issue opens on -- 14th Feb 2000
Issue closes on -- 20th Feb 2000
POST ISSUE
The issue has been oversubscribed by 300 times. The details of the
company after the issue is closed are given below.
Company - xyz co
Business - Software Solutions Provider
Years of existence in the Business - 10 years
Issue size - 100 cr
Issue opens -- 14th Feb 2000
Issue closes - closed for subscription
Address -- No company by this name exists in this area
Website - Connection not found
Hidden Highlights of the company
Company - xyz co
Original Business - Automobile Service Station
Years of existence in the Business - 3 months ( It merged with a company which is
established 10 years ago)
Promoters background - SSC Passed
Past activities of the promoters - One of the promoters involved in a murder case (not
mentioned in the object clause of the issue)
Personnel - Highly qualified (html, front page)
There were many companies like this, which came out with an IPO in the boom period in 2000. Their main business hardly mattered to them. Whether it is an Automobile Service Station like Balwas eCom Ltd. or a bunch of HTML designers they all took advantage of the Tech boom. It started its software division and came out with an IPO. What was even more surprising were the investors who were so fascinated by the name ‘software’ or ‘tech’, that they invested in them left, right and centre. There were cases where Software Issues were oversubscribed by 400 times.
It was the period from December 1998 to April 2000. Nasdaq increased tremendously. There was a sudden boom in the IT industry. Our Indian Market touched an all time high and crossed 6000 mark. Every software company filed its Prospectus with Sebi for IPO. Every day atleast 15 to 20 companies came out with an IPO. Why was there such a mad rush for Software Issues? This can be attributed to several factors. There was a big growth in US Economy. It declared a surplus in their budget. This led to huge expenditure and investment opportunity in the US and large companies saw IT as a potential sector for investment. There was a huge demand for technological services and technological advancement. All these helped small companies in India to go for projects in the US and therefore came out with public offers.
It was not difficult for any company to become a Software company. All it needed to do was to change the Object Clause of the Issue. The whole procedure involved was not a difficult one. Anything, when the Market conditions are so good.
The number of such Fly by Night companies was huge. Some of them don’t exist at all and some of them exist, with their shares either quoting at a nominally low value or not getting quoted and not being traded at all. In all this Market boom and Tech hype it is the Investor who was made the scapegoat. Many of them invested huge amounts. Some made money by offloading their shares when there were signs of decline in the Market. Some burnt their fingers by getting succumbed to greed and did not exit from the Markets at the right time. Such incidents keep occurring as long as there are people who get carried away by the hype created. So, don’t get surprised if there is Media hype or Pharma hype next in the Market.
S Suma