Neeraj Monga has been in the news ever since he released a 105-page ‘sell’ report on Indiabulls last week. The Indian corporate house has hit back with a police complaint and allegations of bribery. The head of global research at Veritas, however, is in no mood to back off. He tells Ashish Rukhaiyar that rather than making such allegations, companies need to come clean on accounting methods meant to manipulate results and siphon off funds. Excerpts:
It is being widely reported in India that Veritas comes out with only ?sell? report and sends the complete report to select few subscribers that can short the stock before it is publicly released.
Of the 68 stocks in our coverage universe in Canada, 37 are rated ?buy?. We will be issuing a ?buy? report on an India company in 6-8 weeks. Long or short are two sides of the same trade. Those investors that have an information advantage can outperform the market by placing a bet in one direction.
There is nothing wrong with that. Companies that use aggressive accounting to manipulate financial results, or are siphoning funds from the publicly traded companies into private businesses of controlling shareholders, need to come clean. It is the job of the research analysts to highlight to investors the most reasonable presentation of a company?s reported results. On that basis, some stocks will be a ?buy? and others will be a ?sell?.
Our subscribers have a right to receive the reports first because they pay for the product. If they act on it, then they are putting capital on the line because they believe in us. If we are wrong, those investors will lose money. Moreover, why is a ?sell? call worse than a ?buy? call? I don?t understand the nature of the debate in India. Indian regulators need to make shorting legal in India. That will get rid of all questionable companies on the Indian stock exchanges for the benefit of all Indians.
Indiabulls has alleged that they have proof that you demanded money through your personal email, saying if the money is given in time, you would hold back the report.
They should show the proof to the entire market. I have not seen it. They were quick to file a criminal complaint. Why not show it to the market? Our report is in the public domain for all to see and scrutinise. Why are they hiding such an important piece of evidence? I know the answer. There is no such email and they are lying. It further provides proof that the group is run by men that lack both character and the capacity to engage in an intellectual debate.
By partnering with a provider of capital ? say a hedge fund ? one could make millions of dollars in a single day by shorting the stock in the F&O segment. That is more credible, easy and all the way legal, than asking for a petty bribe from a corporate house. Indiabulls is run by people who lack ethics, integrity, objectivity and, now, it seems, based on these charges, even basic intelligence.
Based on the response of Indiabulls, do you think that there were any factual errors in your report?
We are checking the Indiabulls Infrastructure Development and Indiabulls Power merger related equity dilution. If that number is wrong, we will correct that. We are of the view that the EWT (employee welfare trust) is a passive entity that doesn?t have the cash flow to service its debts. Therefore, any loan to the EWT is basically a non-performing asset.
However, IndiaBulls Financial has managed to structure its loan agreement with the EWT in a way that allows it to recognise income while the EWT is not paying any interest to it. Economically, EWT is unable to meet its commitment today, while Indiabulls is recognising income today. They can disagree with us, but that doesn?t mean we are sensationalising. We are presenting a more conservative view.
This would perhaps be the first time that an Indian company has lodged a formal police complaint against you. Have you been subject to a similar response in any other country?
It can happen only in India. A nation that was subjugated by foreigners for 250 years has learnt that suppressing intellectual debate is the best way to protect entrenched interest. Indiabulls is playing the same game. Everyone at Veritas and across the globe is shocked at the response of the company and the stories doing the rounds about me and Veritas in the Indian media.