Sebi seeks more details in Triveni issue

The Securities and Exchange Board of India ( Sebi) has sought more disclosures in the red herring prospectus filed by the Uttar Pradesh-based Triveni Engineering and Industries Ltd.

The capital markets regulator has asked for disclosures on the history of the company following investors' complaints that the company had not given the details about its previous initial public offering in 1993.

The disclosures sought by Sebi mainly pertain to restructuring of the company under a scheme of arrangement wherein Triveni Engineering was merged with a small company Ganga Sugar. The merged entity was renamed as Triveni Engineering and Industries Ltd.

In the reverse merger, the overall equity was reduced and thus earnings per share increased with the restructuring of the share capital.

However, post restructuring in 2003, the company decided to convert retail shareholding into preference shares. Since there was no conversion of the promoters' holding, in the merged entity promoters' stake exceeded 90 per cent.

The company declared a profit in 2003-04. The retail investors had not got the benefit of restructuring even as they had put in money in the public issue of the erstwhile Triveni Engineering at a hefty premium, said a source who was critical of the recast.

Small investors have complained that the company used "negative clause" for accepting the nod from the shareholders for converting the shares into preference shares.

Negative clause means if the investor does not respond to the letter sent by the company for its permission for conversion of hares into preference shares, it is meant to be an approval.

Therefore, it is not certain how many shareholders actually wanted their shares to be converted into preference shares, the source pointed out.

Responding to queries sent, the company stated that Sebi has sought clarification to the scheme of arrangement which has been answered to the regulator already.

The company said the reverse merger was proposed to take advantage of the substantial tax benefits to the merged company.

Explaining the conversion of retail shares into preference shares, the company statement said the decision was taken when the share price of Triveni Engineering started falling in 2003 and came down to Rs 25-26 per shares.

The proposed conversion price of Rs 42 per share was more than 50 per cent over and above the prevailing market price per share. Thus, the scheme of arrangement was in the interest to all shareholders, it said.