New Delhi/Chennai: In an unusual move, India’s capital markets regulator has asked for an independent evaluation before allowing Subhiksha Trading Services Ltd to be merged with Blue Green Constructions and Investments Ltd.
This comes as another hurdle for distressed discount retailer Subhiksha, whose merger proposal is also being objected to at Madras high court by investors and creditors.
The Securities and Exchange Board of India (Sebi) had asked Mumbai-based Bansi S Mehta and Co. to conduct the independent valuation three weeks ago, according to Shiva Ganesh, president, Collins Stewart Inga Pvt. Ltd, the manager of the deal.
Yet another block: Subhiksha managing director R. Subramanian. Harikrishna Katragadda / Mint
“What Sebi is currently checking or going through is the open offer proceedings for Blue Green acquisition,” Ganesh said. “It’s not a scrutiny and it’s merely intention of confirmatory valuation certificate.”
Bansi S. Mehta declined to comment. Sebi officials were unavailable for comment.
An expert, however, said Sebi typically wants an independent evaluation only if it suspects some shortcomings.
“Basically Sebi would have apprehensions about the terms of the value of the deal or the valuation of the swap ratio, which may be detrimental to the minority shareholders of Blue Green Constructions,” says Abizer Diwanji, executive director at consultancy firm KPMG. “They would only act in exceptional matters. If they believe shareholders’ interests are compromised then they would act. Otherwise, as a process Sebi doesn’t interfere much in the valuation process. Normally, it doesn’t happen.”
The Madras Stock Exchange (MSE), where Blue Green Constructions is listed, has not yet approved of the merger, an official at the bourse said on condition of anonymity, citing the sensitivity of the matter. “The listing committee has not given any clearances for the merger,” the official said.
However, R. Subramanian, founder and managing director of Subhiksha, said the MSE has given a go-ahead. “MSE approval has been received. Many months ago—can’t trace details—you could ask MSE I guess,” he said by email.
“Sebi under its powers under 20(5)(c) of the takeover code relating to valuation of infrequently and untraded shares has appointed a chartered accountant firm to verify the value of BGC (Blue Green Constructions) as on 6 June, 2008, possibly to determine if the value of Rs10 is lesser than the fair value,” Subramanian had earlier said by email.
Blue Green Constructions was acquired in June last year by Cash and Carry Wholesale Traders Pvt. Ltd, which is promoted by RS Associates and SSS Trust, the same entity that is also promoter of Subhiksha.
Cash and Carry bought 756,100 shares, or 14.97%, of Blue Green Constructions through an off-market purchase. Following this, they agreed to buy a further 50,500 shares at Rs10 each, representing another 1%, taking its stake to 15.97%.
Cash and Carry then made an open offer to shareholders of Blue Green Constructions to buy 1,010,000 shares of Rs10 each, or 20% of the total equity. This was followed by a proposal to merge Subhiksha with Blue Green Constructions.
Blue Green Constructions was a non-deposit accepting non-banking financial company, but surrendered its certificate and the Reserve Bank of India cancelled it in December, according to an official at the central bank who did not want to be named.
Subhiksha’s investors, ICICI Venture Funds Management Co. Ltd and PremjiInvest, the private equity arm of technology billionaire Azim Premji, have filed a petition in the Madras high court objecting to the merger. Tata Teleservices Ltd and Hindustan Unilever Ltd, which have unpaid bills with Subhiksha, have objected in court on similar grounds.
Indian laws mandate that a merger of companies has to be cleared by a high court.
Khushboo Narayan in Mumbai contributed to this story.