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Just before the National Spot Exchange Ltd (NSEL) crisis escalated, a broker, GCM Commodity and Derivatives, raised funds from the equities market to invest in the products of the now beleaguered bourse.
Terming NSEL's product offerings a "unique, low risk, high return investment opportunity in the commodity market for Indian resident investors", GCM Commodity raised money from a little more than 350 investors through its Initial Public Offering (IPO) earlier this month.
As the offering was made on the BSE SME exchange (for small and medium enterprises), the platform meant for companies with low paid-up capital, the amount raised by GCM Commodity was just Rs 7 crore. Surprisingly, the public issue attracted investors and it managed to sail through, though it coincided with the breaking of the NSEL crisis. The 3.5 million-share offering of GCM Commodity opened for subscription on August 1, the same day NSEL announced suspension of trading in most of its contracts. Later, the issue escalated into a full-blown payment crisis, with unsquared settlements of Rs 5,500 crore.
GCM Commodity, which operates out of Mumbai, is predominately engaged only in investing in NSEL, either on its own proprietory account or for its clients.
"We are engaged in the business of investing in NSEL investment products for arbitrage opportunities and commodity broking. Of our issue proceeds, we will use Rs 600 lacs (Rs 6 crore) for the purpose of working capital...Net proceeds will be used towards maintaining adequate levels of margin with NSEL and MCX and also for investing in NSEL investment products," its offer document states.
It has further stated that the company managed to almost double its operating profit in 2012-13 compared to the previous year, “mainly on account of revenue from investment in NSEL investment products”.
Queries sent to the company on utilisation of its IPO proceeds and current dues from NSEL remained unanswered. As on June, its investment in NSEL products stood at Rs 8.4 crore, up from Rs 4.7 crore at the end of the previous quarter.
SME IPOs have less stringent regulatory and disclosure requirements and just need a stock exchange nod, and not of the Securities and Exchange Board of India, the market regulator, to launch the offering.
An official with BSE SME, where the company has listed, said they don’t check a company’s business model before giving approval. “We just have to ensure whether all the disclosures and other regulatory requirements have been met.”
GCM Securities, the parent company of GCM Commodity, had raised Rs 12 crore through an IPO on the BSE SME platform in March.
