Mumbai: In an embarrassment to the Central government and blue-blooded investment bankers who sold the record Rs15,000 crore share sale by Coal India Ltd (CIL), the capital market regulator on Wednesday asked the company to offer an exit option to all investors, including qualified institutional bidders, until 25 October.
The Securities and Exchange Board of India, or Sebi, took the decision because the profit and loss account of the miner, submitted to the regulator as part of CIL’s prospectus for the initial public offering (IPO), contained errors.
The IPO, which closed on Thursday, was subscribed 15.2 times, attracting Rs2.35 trillion from investors.
The portion kept for institutional buyers was subscribed 25 times. The 35% earmarked for retail investors was subscribed nearly twice, according to data from the National Stock Exchange.
“Investor response across segments has been tremendous. Retail investors’ portion, which was fully subscribed overnight, saw more subscriptions. We will know the final numbers late in the night,” said Sanjay Sharma, managing director, Deutsche Equities (India) Pvt. Ltd, one of the merchant bankers to the issue.
The error in the profit and loss account was pointed out to Sebi by some individuals, disinvestment secretary Sumit Bose told Mint over the telephone.
“Sebi has asked us to issue this corrigendum and give a withdrawal option,” he said. “We are like any other issuer. So we follow what the regulator says.”
According to Bose, in the profit and loss statement for the quarter ended 30 June, an item “accretion in stock” had been mentioned as Rs31,94.5 crore instead of Rs5.4 crore, while the sum under the head “other income” should have been Rs31,94.5 crore instead of Rs5.4 crore.
The company and bankers tried to play down the error. While CIL said it was a printing error, a merchant banker involved in the issue called it a clerical error.
“A mistake is a mistake. It happens,” said A.K. Sinha, director-finance, CIL. “It happened because the documents were hurriedly printed. Last night, it came to our notice. It was an error of interchanging the stock with other income. The interchange has happened only in CIL’s stand-alone statement. It is not reflected in the consolidated numbers. There is no impact on profitability. It is not material.”
S. Subramanian, head of investment banking at Enam Securities Pvt. Ltd, another banker to the issue, said: “The withdrawal option has been given because of a small clerical error in the financial statement. The statement has interchanged other income with closing stock. This has led to some difference in numbers. We have issued a corrigendum.”
Investors who choose to withdraw their bids will get a full refund of their money.
If too many investors opt to withdraw, it could push the listing beyond the originally projected 12 days from the close of the offer.
“If there are huge withdrawals, then we may have a problem. But we don’t expect this,” said M.V. Ramnarayanan, director, Link Intime Ltd, registrar to the issue.
Disinvestment secretary Bose also said that the error was minor. “You can see it for yourself in the prospectus. I don’t think this will affect the listing timeline.” According to him, the listing is expected on 4 November.
Book running lead managers are responsible for proper due diligence of the prospectus and to ensure that there are no such errors, omissions or misstatements.
Citigroup Capital Markets India Pvt. Ltd, Kotak Mahindra Capital Co. Ltd, Enam Securities, Deutsche Equities, DSP Merrill Lynch Ltd and Morgan Stanley India Co. Pvt. Ltd are the book running lead managers for the issue.
They offered their services virtually for free as the government gives the mandate for such issues to the lowest bidder. The bankers had quoted a near-zero fee for selling the Coal India issue.
R. Balakrishnan, a Chennai-based investment adviser and columnist, said the regulator was right in forcing an exit option to be offered to investors.
“It is not right to say the error is minor and so Sebi should have been soft. It is a question of principle. These investment banks are all big names. It reflects on the quality of people they have. It shows that they are extremely careless,” he said.
According to him, ordinary investors do not have enough the time or wherewithal to do a due diligence on a company’s claims. “They have to rely on the merchant bankers. Therefore, Sebi should take strict action on the bankers for such lapses,” he said.
In the past few months, two small companies have offered exit options to investors for similar reasons. The IPO of VA Tech Wabag, a Chennai-based water and waste treatment company, which closed on 27 September, had to offer an exit option to investors as its peer group comparisons were based on incorrect numbers.
In July, Sebi had told Ahmedabad-based Aster Silicates Ltd to provide an exit option to investors because it had not disclosed some cases in which it was involved.
Murali R., a bank employee who was following the hype around Coal India IPO, said: “I got to know through a friend that there is such an exit option. But I searched for it in the Net (Internet) and looked up the TV channels. I could not find any information till late afternoon.”
The corrigendum was not on the websites of Sebi or the stock exchanges.
Although the exchanges received the corrigendum during the day, it was not seen in the websites of both the Bombay Stock Exchange and NSE until Thursday evening.
“We have received a corrigendum. Since the stock is not yet listed, it is not on the website. However, it will be seen on the IPO bidding system,” an exchange official said.