The Securities and Exchange Board of India (Sebi) on Wednesday cracked down on promoters, key officials and directors, including independent directors, of issuer firms, merchant bankers and stock market operators involved in several irregularities in seven recent initial public offerings (IPOs). Over 100 entities involved in these IPOs are banned from the securities market with immediate effect.
Prashant Saran, whole time member, Sebi, passed these interim orders, allowing the aggrieved 21 days to respond.
Sebi said it had started an investigation of these companies after it found wide price fluctuations on listing. The investigation primarily focused on the verification of disclosures made in the offer document, the examination of the bidding pattern, the trading on the first day of listing and the utilisation of IPO proceeds vis-à-vis what is stated in the offer document.
It found irregularities in the cases of Taksheel Solutions, PG Electr-oplast, Brooks Laboratories, RDB Rasayans, Tijaria polypipes, Bhar-atiya Global and Onelife Capital Advisors. Of these, six companies are trading below their issue prices as of date. The majority of these issues, which raised between Rs 35 crore and Rs 120 crore, hit the market in September-October, a time when most large companies were finding it difficult to raise money. All these companies are now banned from raising fresh capital. However, Sebi has not banned trading on these stocks.
Apart from Onelife Capital, a merchant banker that raised Rs 36.85 crore through one of the IPOs, Sebi has banned five merchant bankers who had managed these IPOs. In the case of Tijaria Polypipes, there was no directive against the merchant bankers. Atherstone Capital, Almondz Global, D&A Financial services, Chartered capital and PNB investment Services are the other merchant bankers barred from primary markets.
A major irregularity found was the siphoning out of money through inter-corporate deposits (ICDs). In many cases, Sebi found the status of clients and vendors of the company and the fund flow between the company and clients and vendors was abnormal. This money was, in turn, used to boost the stock prices on listing.
For Taksheel Solutions, Sebi found “a part of the proceeds of the issue had been siphoned off in a circuitous route to certain entities and operators, the top net buyers on stock exchanges on the listing day.”
In the case of Brooks Labs, some of the funds received in the IPO were also found to have been transferred through layers to Overall Financial, which traded in the scrip and recorded losses. “Thus, prima facie, it indicates an exit was given to motivated bidders,” the Sebi order said.
| UNDER THE SCANNER | |||||
| Issue size (Rs cr) | Date of list | % chg | |||
| Issue price | Dec 28,’11 | % chg | |||
| Taksheel Solutions | 82.5 | Oct 19,’11 | 150 | 14.8 | -90.1 |
| RDB Rasayans | 35.55 | Oct 7,’11 | 79 | 9.3 | -88.2 |
| Brooks Laboratories | 63 | Sep 5,’11 | 100 | 14.75 | -85.3 |
| PG Electroplast | 120.64 | Sep 26,’11 | 210 | 190.75 | -9.2 |
| Onelife Capital Advisors | 36.85 | Oct 17,’11 | 110 | 243.10 | 121 |
| Tijaria | 60 | Oct 12,’11 | 60 | 10 | -83.3 |
| Bharatiya Global | 55 | Jul 28,’11 | 82 | 9.25 | -88.7 |
| Data compiled by BS Research Bureau | |||||
For most of these firms, Sebi has asked these to call back the ICDs placed with related firms. Taksheel has been asked to call back Rs 23 crore and place the proceeds in an interest bearing escrow bank account. Brooks Labs shall call back ICDs advanced by it to Suryamukhi Projects and Neo Power Universal FZ LLC. RDB Rasayan has been asked to call back Rs 31.60 crore, given as inter-corporate loan, from RDBRIL.
Bhartiya Global has been asked to call back ICDs of 12.5 crore invested with Nihita Financials Ltd, Sanjukta Vanijya P and Darshan Tradelink and all amounts transferred / paid out of IPO proceeds to its directors or the relatives of its directors and other related parties.
In the case of Tijaria Polypipes, Sebi said it had received a complaint in the matter of its IPO, alleging insider trading or illegal turnover was resulting in huge losses to retail investors. The regulator conducted investigation to examine the steep fall in price of the scrip on the first day of trading. Sebi found the manipulative conduct by certain persons/entities on the first day of trading in the scrip of Tijaria Polypipes resulted in substantial losses to genuine investors who purchased shares of the company on the first day of trading.
