Mumbai: India’s capital market regulator has barred seven companies from raising money from the public for suspected misuse of proceeds from initial public offerings (IPOs), pricing irregularities and inadequate disclosure of information in what may turn out to be the biggest scam related to IPOs since 2005.
The Securities and Exchange Board of India (Sebi) also barred six investment bankers from managing any more share sales for alleged failure of due diligence in overseeing the IPOs.
The seven companies are PG Electroplast Ltd, RDB Rasayans Ltd, Taksheel Solutions Ltd, Brooks Laboratories Ltd, Bharatiya Global Infomedia Ltd, Tijaria Polypipes Ltd and Onelife Capital Advisors Ltd, the regulator said in separate orders posted on its website. The merchant bankers are Almondz Global Securities Pvt. Ltd, D&A Financial Services Pvt. Ltd, PNB Investment Services Ltd, Atherstone Capital Markets Ltd, Hem Securities Ltd and Chartered Capital and Investments Ltd.
Attempts to reach the investment banking heads of Almondz Global, D&A Financial Services and Chartered Capital did not elicit any response. Mint could not contact other investment banks involved.
Sebi announced the regulatory action after investigating wild fluctuations in the share prices of recently listed firms. On 9 December, Mint reported that the capital market watchdog was probing IPOs in which shares had moved sharply soon after their stock-market listing and was expected to order action soon. The probe included questioning of merchant bankers and brokers involved in the listing process and trading of shares.
Since January, at least 37 companies have listed their shares on stock exchanges through IPOs, of which about three-fourths are trading below their issue prices. While the Sensex, the BSE’s benchmark equity index, has shed at least 22% in the year so far, the exchange’s IPO index has fallen 27%.
In the IPO scam that was unearthed in 2005, Sebi found that a group of fictitious investors cornered shares reserved for retail investors in 21 IPOs and made illegal profits after their listing. Following investigations, Sebi ordered the wrongdoers to return their profits.
Kolkata-based polymer manufacturer RDB Raysans Ltd, which came out with an issue of Rs 35 crore at a price of Rs 79 per share in September, has also been barred from raising any more capital from the securities market for misutilizing IPO proceeds to fund losses incurred by some trading clients, six of whom were banned, on its listing day.
Sebi also banned six of the company’s directors. The regulator has asked RDB to pull back a Rs 31.60 crore loan it made to a group company with weak financials and deposit it in an interest-bearing escrow account. The merchant banker, Chartered Capital, its managing director and company secretary were also banned from any capital market-related activities.
Sebi has barred PG Electroplast from raising any more capital from the market and seven of its directors from dealing in the securities market. The regulator, which prima facie suspects the company diverted IPO funds for questionable land deals and raw material purchases amounting to siphoning off or diversion of funds, has also asked the company to call back Rs 32 crore which was given as inter-corporate deposits and keep the money in a separate interest-bearing escrow account with a scheduled bank.
The merchant banker to the issue, Almondz Global, has been barred from taking up any new assignments or involvement in new capital raisings, including IPOs and follow-on public offerings.
In the case of Hyderabad-based Taksheel Solutions, Sebi observed that the company has hid “vital pieces of information” in its public disclosures and misstated figures. There was a lack of adequate, independent and professional due diligence by the merchant bankers, it said.
Questions have also been raised on the status of clients and vendors of the company and the alleged siphoning of money and fund flows between the companies, vendors and clients. The regulator also raised issues over the pricing and the listing of the shares on the stock market by the company and related entities. Sebi barred six promoters and nine entities in Taksheel’s case. Sebi has asked the company to recall its inter-corporate deposits and unutilized IPO proceeds and keep the money in an escrow account.
Sebi prohibited Brooks Laboratories and seven of its officials including the chairman, managing director and independent directors from accessing the security market and also from buying, selling or dealing in the securities market. The regulator has also asked the company to call back inter-corporate deposits advanced by it to Suryamukhi Projects P. Ltd. and Neo Power Universal FZ LLC, UAE. It did not mention the amount. Sebi said prima-facie findings of its investigation led to suspicions of funds having been siphoned off.
Smart card solutions provider Bharatiya Global Infomedia was also prohibited from raising any further capital from the securities market. The company has also been asked to call back inter-corporate deposits worth Rs 12.5 crore and all amounts transferred or paid out of IPO proceeds to directors or relatives of its directors or HUFs belonging to any of its directors or associate or subsidiaries or group companies.
Sebi has ordered that these amounts along with the unutilized IPO proceeds should be deposited in an interest bearing escrow account with a scheduled commercial bank until further orders. Sebi has also banned eight of its directors from dealing in the securities market and two of its top executives from taking up any new assignments.
The regulator banned Tijariya Polypipes from raising capital and prohibited eight of its directors from dealing in the securities market. The company has also been asked to call back diverted funds.
Investment bank Onelife Capital Advisors Ltd, which raised Rs 38 crore in an IPO in October, has also been barred from undertaking any capital market-related activity in its capacity as a merchant banker. Six of its directors were also barred from accessing markets.
The company has been asked to pay back the IPO funds that it gave to its shell companies and keep the money in an escrow account. Book running lead manager to the issue, Atherstone Capital Markets Ltd, has also been barred for alleged failure of due diligence.
Pramit Bhattacharya, Pallavi Pengonda and Sneha Shah contributed to this story.
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