Sebi intervenes in Rs 45 cr Trafiksol IPO irregularity on BSE SME platform

To undertake detailed examination into disclosures made by SME firm

The Securities and Exchange Board of India (Sebi) has intervened in the matter concerning alleged irregularities by Trafiksol ITS Technologies, which had come out with a Rs 45-crore initial public offering (IPO) last month.

In an ex-parte order, the market regulator has said it will undertake a detailed examination into the disclosures made by the small and medium enterprise (SME) company in its draft offer document.

BSE had halted the listing of Trafiksol, a software provider for traffic systems, amid complaints around use of the issue proceeds and wrongful disclosures.

Sebi’s probe is expected to be completed within a month. Trafiksol’s IPO had garnered 345-times oversubscription.

 

In its offer document, the company had disclosed it would use Rs 17.7 crore for a software contract to a third-party vendor.

Sebi’s initial investigation showed that the third-party vendor had not filed financial statements with the Ministry of Corporate Affairs for more than three years. And, it had no revenue in the last one year for which financials were filed.

Further, the vendor’s financial statements for the previous three years were signed on the same day, a few days before the scheduled listing. The vendor’s registered office was also closed and its goods and services tax (GST) return did not match the disclosed business undertaken. 

“It cannot be ruled out at this stage that the attempt to award the software contract to a vendor, who prima facie appears to be a shell entity without any prior experience in developing a software platform of the nature disclosed by the company in its DRHP, was an attempt to deliberately mislead investors and divert the IPO proceeds,” noted Sebi whole-time member Ashwani Bhatia in the order.

Sebi’s order notes that if such IPOs are allowed to list, then it can shake the confidence of investors in the listed SME ecosystem. The regulator has also pointed out the lapses by the merchant banker.

While investors have sought refund of their investments, Sebi has directed BSE to ensure that the proceeds from the IPO are placed in an interest-bearing escrow account until further orders. The company will have no access to these funds.

The documents of SMEs for listing are not vetted by the Sebi. Instead, the exchanges grant approval for this.

The SME segment has gained traction with exorbitant listing gains, which now have been capped by the exchanges. 

Amid rising instances of irregularities, Sebi is mulling stringent measures to curb misuse of the SME platform.

A consultation paper around this is expected, according to sources.

Under the Scanner

> Trafiksol’s Rs 45 cr IPO was subscribed 345 times, issue closed on September 12

> On Sept 17, BSE deferred listing on SME platform following complaints

> BSE carried an independent examination and submitted report on October 8

> Findings show lapses in due-diligence, dubious third-party vendor who was to receive Rs 17.7 cr for software contract

> Sebi to probe if the IPO was an attempt to mislead investors and divert funds