Mumbai: Seven hedge funds have sued Castex Technologies in a UK court alleging share price manipulation to trigger mandatory conversion of bonds into shares, a person aware of the development said.
The funds have also filed a separate lawsuit against Standard Chartered Bank which sold them the bonds, the person said, requesting anonymity. The funds alleged the risk of mandatory conversion lay with the bank and it was not addressing their concerns. The case is scheduled for hearing on 29 July.
The development was first reported by The Economic Times.
The funds include Pine River Asia Master Fund, a fund of Highbridge, Arrowgrass Master Fund, a French Bank, Northwest Fund and Northwest Warrant Fund.
A second person confirmed the development, without giving details.
“The suit is split in two, although for the funds the stronger case would be against the bank because the bank is dragging its feet on the problem that will inevitably leave a $130 million hole in its balance sheet," the report said, quoting a fund manager it did not identify.
In 2012, these funds bought a derivative instrument called an ASCOT bond from Standard Chartered on a foreign currency convertible bond (FCCB) issued to Castex worth $130 million, with a coupon of 6%. The bond had a clause that the company could call for a mandatory conversion, if the price of the share exceeded 130% of the holding value.
The fund managers in August 2015 had filed a complaint with the market watchdog, Securities and Exchange Board of India (Sebi) alleging the company had manipulated its stock price.
Castex shared rose from April to June but lost 90% of their value from a peak of ₹ 363.1 on 13 July. Bondholders complained to regulators the company had boosted the price to trigger a mandatory conversion and reduce its debt burden.
The regulator is now probing the company for alleged violations Sebi Act. A Standard Chartered Bank spokesman did not respond to a call seeking comments. An email sent to the PR agency for Castex Technologies, went unanswered.