It is time to rethink about 'Z' Group Indian Companies

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It is time to rethink about 'Z' Group Indian Companies

By

D. Aruna Kumar
Assistant Professor (Finance & Accounting)
Lokamanya Tilak P G College
Ibrahimpatnam, Hyderabad-501 506
E-mail: dakumars@gmail.com
&
K. Kiran Kumar
Assistant Professor (Marketing)
St. Anns PG College for Women
Mallapur, Hyderabad
E-mail: kiran_1191@yahoo.co.in

The recent news in the economic times "Z- category penny stocks face axe" will help the Z-Group investors to be very cautious about their penny stock investments. The Finance ministry will soon ask SEBI to hasten the process of getting a large number of penny stocks delisted from the Bombay Stock Exchange as these have long been placed in the Z-category, denoting lack of regulatory compliance. Presently, there are over 9000 listed companies in the different exchanges of the country. Only 5000 of them are active trading. In Delhi Stock exchange over thousand companies have not paid their listing fees for years. Out of all the exchanges, NSE has more stringent norms and does not list penny stocks easily.

Status of BSE Z-Group Companies:

The BSE Governing Board in its meeting held on 16th January, 2002, has approved amendments to guidelines for shifting/retaining companies to/in 'Z' Group. The number of companies placed under this group as at the end of May, 2001 was 1,475. The number of companies listed at the Exchange as at the end of May 2001 was 5,874. This is the highest number among the Stock Exchanges in the country and in the world. As per the revised guidelines, the Exchange will consider any three out of the following seven criteria of non-compliance for shifting a company to the 'Z' Group.

Listing Agreement Clause	Description
Clause 15 & 16	Required notice of Book Closure & Record Dates.
Clause 31(1)(a)	Yearly submission of Annual Reports.
Clause 35	Quarterly submission of shareholding pattern.
Clause 38	Payment of Annual Listing Fees.
Clause 41	Publication of Audited / Unaudited results on a quarterly basis.
Clause 3, 12, 21	Redressal of Investors' Complaints (regarding share transfers etc.)
Clause 49	Implementation of corporate governance, if applicable.

Additionally the Exchange may shift companies into 'Z' Group, which in the discretion of the Exchange
are fundamentally weak in terms of networth, sales, market capitalization and profitability. Further,

1. The Governing Board/Listing Committee will have the discretionary powers to shift any company to and from the 'Z' Group.

2. The Surveillance Department will have the discretionary powers to add or remove companies from this group based on their investigation/complaint/trading behaviour, etc.

3. The Investor's Service Cell will have the discretionary powers to add or remove companies from "Z" Group.

4. Companies who fail to make demat arrangement with both the depositories, would be in 'Z' Group.

5. The Exchange will also take into account punitive actions, if any, taken by any regulatory authorities against a company for shifting to "Z"Group.

6. Notwithstanding what is stated in the aforesaid criteria, the Exchange may suspend trading in any security for non-compliance of any one or more clauses as it may consider necessary.

The companies in the "Z" group are reviewed on a quarterly basis.

Payment of Listing Fees

All companies listed on the Exchange have to pay Annual Listing Fees by the 30th April of every financial year to the Exchange as per the Schedule of Listing Fees prescribed from time to time.

The schedule of listing fees for the year 2004-2005, prescribed by the Governing Board of the Exchange and approved by the Securities and Exchange Board of India is given hereunder :

SCHEDULE OF LISTING FEES FOR THE YEAR 2005-2006
Sr. No.	Particulars	Amount (Rs.)
1	Initial Listing Fees	20,000
2	Annual Listing Fees (i) Companies with paid-up capital* upto Rs. 5 crores (ii) AboveRs. 5 crores and upto Rs. 10 crores (iii) Above Rs. 10 crores and upto Rs. 20 crores	10,000 15,000 30,000
3	Companies which have a paid-up capital* of more than Rs. 20 crores will pay additional fee of Rs. 750/- for every increase of Rs. 1 crores or part thereof.
4	In case of debenture capital (not convertible into equity shares) of companies, the fees will be charged @ 25% of the fees payable as per the above mentioned scales.
*includes equity shares, preference shares, fully convertible debentures, partly convertible debenture capital and any other security which will be converted into equity shares.

Conclusion

There will be very easy possibility of Z-category companies become delisted. Small investors who have no access to research data get attracted to these low price shares. At present, new companies must have a capital base of at least Rs. 3 crore to get listed. But there are no such rules for companies which are already listed, but whose capital has slipped way below Rs. 3 crore. Everyone should wait and see such companies could be given an option to either increase their capital base within a specific time period or face delisting.

(The author acknowledges Assistant Professor K Kiran Kumar of St. Anns PG College for his immense cooperation throughout this study.)

D. Aruna Kumar
Assistant Professor (Finance & Accounting)
Lokamanya Tilak P G College
Ibrahimpatnam, Hyderabad-501 506
E-mail: dakumars@gmail.com
&
K. Kiran Kumar
Assistant Professor (Marketing)
St. Anns PG College for Women
Mallapur, Hyderabad
E-mail: kiran_1191@yahoo.co.in

Source: E-mail September 26, 2005

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