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Sebi issues warning on Sahara debt

Sebi issues warning on Sahara debt
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First Published: Fri, Jan 07 2011. 10 50 PM IST
Mumbai: India’s capital market regulator on Friday issued a public notice on its website cautioning investors against the debt of Sahara India Real Estate Corp. Ltd and another group firm, Sahara Housing Investment Corp. Ltd.
The notice said the “public issue” of debt by the two companies is not in compliance with regulatory norms, and the Securities and Exchange Board of India (Sebi) “will not be able to provide redress to any investor on any complaint” in connection with the securities.
Sahara India Real Estate, a Sahara group firm, immediately sent a legal notice to Sebi.
Prashant Chandra of Prashant Chandra and Co., the Lucknow-based legal advisers to the Sahara group, said: “After the Sebi public notice, we have been flooded by calls from worried investors.”
Chandra said the Sebi notice was illegal and Sahara has sent notices to senior officials at the regulator, including chairman C.B. Bhave, urging its removal from the Sebi website immediately.
For its part, Sebi is likely to follow the move by publishing the public notice in leading national and regional dailies across the country.
According to Chandra, the Sebi notice is in contempt of a 13 December order passed by the Allahabad high court.
Sahara is planning to file a contempt petition in the high court if the market regulator does not remove the public notice from its website.
Early this week, the Supreme Court turned down Sebi’s plea to stop the two firms from continuing to raise money from investors, but empowered the regulator to seek information from the companies and issue advertisements to inform investors that the matter was pending before court and that their investment would be subject to the outcome of the litigation.
On 24 November, Sebi banned several Sahara group entities from raising money from the public for allegedly violating public issue norms. Subsequently, on 13 December, the Lucknow bench of the Allahabad high court stayed the Sebi order pending investigation.
Sahara’s legal notice, a copy of which was reviewed by Mint, contends that the Sebi notice has “created a flutter in the market and has caused significant dent in the reputation and business prospects”.
The notice alleged that Sebi had pre-supposed certain aspects in its favour, which are yet to be adjudicated by the courts. “Your action of having pasted the said notice, barely a few days before hearing of the writ petition, amounts to blatant contempt and impeding the course of justice,” the legal notice said.
A Sebi spokesperson was not reachable.
A Sahara spokesperson said he cannot comment as the matter is sub judice.
Sebi on Friday issued a public notice on its website saying, “Investors are...advised to make their investment decisions in OFCDs (optionally fully convertible debentures) of these companies taking into account the facts and circumstances brought out above (in the notice). This public notice is issued to safeguard the interest of investors.”
Sahara India Real Estate and Sahara Housing Investment have raised at least Rs4,843 crore by issuing OFCDs to investors.
Sahara has raised this money under three schemes—Abode Bonds (Rs1,385 crore), Nirman Bond (Rs1,980 crore) and Real Estate Bond (Rs936 crore). According to Sebi, these are in violation of public issue norms laid down under the companies law and the Sebi Act.
Sebi’s regulations on public issues prescribe eligibility criteria for accessing public money, mandate due diligence of the company and its promoters by merchant bankers, grading by credit rating agencies, and vetting of the draft red herring prospectus by the regulator against rigorous disclosures norms. Sebi said none of these norms were followed in the debenture issue.
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First Published: Fri, Jan 07 2011. 10 50 PM IST
More Topics: Sebi | Sahara | Real Estate | Housing | CB Bhave |