Promethean takes 8% stake in Nitco

Promethean India, a part of the UK-based private equity group Promethean Plc, has acquired 8% stake in Mumbai-based Nitco Tiles. The acquisition has been made through P-notes, but the deal size was not disclosed.

Promethean India has applied for an FII licence, and hopes to get it soon with Sebi liberalising the norms for FII registration.Promethean India is managed by Mohit Burman and Sir Peter Bert, former chairman of ITV.

Promethean raised $150 millon from London's AIM in April this year.This is the maiden fund floated by the UK-based group and has invested in three companies so far - Mahindra Forgings and a mobile bill payment company Obopay.

PNs through FII sub-accounts under lens

Market manipulators are still at it, or so it seems. Despite the regulatory efforts to discourage participatory notes (PNs), there has been a sudden surge in PN issuance during the last couple of months by the 'proprietary sub-accounts' of foreign portfolio investors.

The trend has fuelled concerns over the possible use of the sub-account route by certain operators to escape the regulatory glare. The share of PNs as a percentage of total foreign portfolio flows rose from 32% late last year to 42% at the end of March 07, according to data maintained by the regulators.

The rise in issuance of PNs during this period has been attributed mainly to the issuance of such instruments by proprietary sub-accounts. Participatory notes are like a derivative instrument issued against an underlying security (in this case, shares).

These are issued by foreign portfolio investors (FIIs) registered here to overseas clients who may not be eligible to invest in the markets here. The holder of PNs will be able to gain from the capital appreciation of the underlying shares.

Read more in The Economic Times article.

Participatory Notes grows 70% in 1 year

According to government estimates, the value of participatory notes (PNs) in the stock market grew 70 per cent in just one year between January 2006 and January 2007, accounting for over one-third of total foreign portfolio investments in the Indian stock markets.

PNs are offshore derivative instruments issued by foreign institutional investors (FIIs) to unidentified overseas investors who are not eligible to invest directly in Indian stocks.

The RBI has criticised PNs, which do not require fund source disclosures, terming them a conduit for money laundering by Indian companies and for hedge funds, which are not permitted to trade on the Indian bourses.

Hedge funds, in particular, which are known for their quick entry into and exit from stock markets, were blamed for the high volatility of Indian stock prices ever since the 2,000-point crash of the benchmark Sensex in May 2006.

But contrary to conventional wisdom, the share of hedge funds in total PN investments in the Indian stock markets could be as little as 8-9 per cent.Earlier estimates put hedge funds’ share at 70-80 per cent of total PN investments, which formed the basis of demands for a ban on this instrument.

Read more in The Business Standard article.