Sucheta Dalal :Issuers Exposed
Sucheta Dalal

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Issuers Exposed  

Nov 6, 2006

SEBI is appropriately diligent about correcting media reports and posting clarifications on its website. Since these reports usually come from disgruntled market intermediaries, Sebi’s clarifications are often aggressive. For instance, last week, it hit out at a leading newspaper’s allegation that companies are suffering due to delay in processing their IPOs by releasing stunning data on why a score of IPOs were delayed. Consider this: the IPO of rating agency ICRA (which rates other IPOs) has not been cleared because the company is not clear who its promoters are. Power Finance Corporation had failed to appoint independent directors while submitting its offer document. Strangely, although PFC made the appointments and got a go-ahead, it failed to make its issue dur ing the three months when Sebi’s observations were valid. LT Overseas and Hanung Toys & Textiles were delayed because Sebi was discussing what must be the policy on pre-IPO placement to Bennett Coleman & Co. The issue has since got a goahead, but Sebi’s policy in this regard is unclear. KEW Industries was delayed for about eight months as it had no business commencement certificate. The 20 per cent promoter contribution was also not, in fact, from the promoters.


Shoddy Documentation

SEBI’S clarification has ruthlessly exposed the shoddy work in the offer document, some times even from leading investment bankers. In the case of FIEM Industries, Sebi asked investment banker IL&FS Investsmart to clarify if two of the promoters were in the RBI’s wilful defaulters list. The issue was cleared, but we don’t know what the answer was. Global Broadcast News has also not been cleared for non-compliance with corporate governance norms and not getting a final clearance to its amalgamation scheme from the high court. The issue is handled by ICICI Securities. Gulshan Sugar & Chemicals was delayed due to allegations regarding certain violations. Transwarranty Finance, lead-managed by IDBI Capital Markets, wants to invest IPO proceeds in two brokerage subsidiaries and needed clearance from the RBI and the bourses. Transwarranty and Gayatri Projects are also accused of shoddy documentation and lack of clarity.

Reluctant Bourses

THE Sebi clarification indicates the two stock exchanges are reluctant to clear certain is sues. The prospectus of Blue Bird (India) managed by DSP Merrill Lynch was delayed for want of in-principle listing approval by the bourses. The same is true for Jas Toll Road Company, Celestial Labs and Synergies Castings handled by Imperial. If bourses are reluctant to list issues, investors need to know what worries them; sadly, Sebi’s clarification gives no answers. Yogindera Worsted is an astonishing case. It filed its prospectus in July 2006. Sebi says it had planned a rights issue in 2005, which was withdrawn when the regulator confronted it with suspected price manipulation of its shares. One of the promoters is also a defaulter to PSIDC, but has since entered into a revised settlement scheme. Sebi hasn’t cleared the issue as it suspects the proceeds will be used to pay back past obligations to the institution. Clearly, this is a repeat of 1992-94 and Sebi needs to bring it to the notice of the finance ministry and the RBI. Interestingly, the bourses cleared this issue. Did Sebi ask them why it was cleared?


IPO Rating Benefits

MINAR International, one of the few IPOs to be rated, got a 2 out of 5 rating. Interest ingly, this issue failed as it did not get institutional subscription. This suggests IPO ratings are a big deterrent to otherwise indiscriminate institutional investment, as they would have to explain investments in poorly rated issues. Sebi says even top investment banks can’t get the prospectus right. Malwa Industries, handled by DSP Merrill Lynch, Kotak Mahindra Capital and Yes Bank, was delayed due to corporate governance issues and lack of clarity on cross-holdings within group entities. Sobha Developers, by Kotak Mahindra, Enam and IL&FS, sought exemption from disclosing its land bank. Info Edge, handled by ICICI Securities and Citi Group, was delayed from May to September as the object of the issue and fund requirements weren’t properly spelt out. Sebi’s exposure of the primary market is welcome, but why is there no explanation in just two cases — Global Vectra Helicorp and Ruchira Papers?

-- Sucheta Dalal