The Hindu Business Line : The genie in the bottle

IMAGINE that there is a genie in a bottle who will satisfy its owner's any one wish. You are offered the opportunity to buy this bottle at a price of your choice. But there is one condition.

After you are done, you have to sell the bottle to someone else at a price less than what you paid for it. If you fail to do this, you will lose everything and suffer the most painful death that one can imagine.

How much would you pay for the bottle?

Obviously, you would not pay 1 paise for it because you cannot not sell it for a lower price. You cannot pay 2 paise for it since no one would be foolish enough to buy it from you for 1 paise, as everyone knows about the terms of acquiring the bottle.

Similarly, you would not pay 3 paise for the bottle since you could not offload it to anyone for 2 paise. The same reasoning can be extended to 4 paise, 5 paise, 6 paise, and so on until we come to the conclusion that you should not buy this bottle for any price. And yet, surveys show that at some high price, say Rs 10,000, most people would agree to buy the bottle. What is their logic?

The twisted logic is that the higher the price you pay for the bottle, the higher the chances of your finding at least one "fool" who will buy it from you at a lower price.

It is like the greater fool theory, but only in reverse. (The regular greater fool theory, which works at least for a time in IPO markets, says, "I know I am a fool to buy this stock at this price, but I know a bigger fool will come along and buy it from me at an even higher price!")

It appears that recent trading activity in Global Trust Bank's shares can be likened to the story of the genie in the bottle. The merger with OBC has left GTB shareholders out in the cold.

Their only hope of receiving anything for their shares is to either sell them to some other "fool".

As the expected realisable value of the bank's assets is lesser than its liabilities, the value of GTB's shares is virtually nil. So, the only hope is to offload the bottle (oops, the shares) to some other investor. But that will not be easy as the stock exchanges will terminate (they use the polite word "suspend") trading in GTB shares from August 27.

Despite this factor, there has been buying in the GTB shares. Who are the buyers?

One thinks they are the same people who always look out for "the light at the end of the tunnel." In GTB's case, however, the light at the end of the tunnel is coming from an oncoming train which will arrive precisely on 26 August at 3:30 PM!

Recently, Mr B.D. Narang, Chairman of OBC, made a tongue-in-cheek statement in an interview to Business Line. He said, "See, I will be very honest. GTB has become history. This company does not exist anymore. So, the share certificate today is as good as a toilet paper."

(The author is finance professor, Management Development Institute, Gurgaon.)

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