Lavasa public offer hits Sebi roadblock

Mumbai: Lavasa Corp. Ltd’s second attempt to go public seems to have hit a roadblock, with the capital market regulator seeking clarification on civil and criminal proceedings pending against the company, which is developing the Lavasa township near Pune in Maharashtra.

Lawsuits pending against the company and its directors have more than doubled to 156 since it first filed its initial share sale documents in 2010 with the Securities and Exchange Board of India (Sebi).

The regulator is now cross-examining the company’s officials over multiple anonymous letters pertaining to pending litigation and grievances received by the regulator, according to two investment bankers involved in the transaction who declined to be named.

“Sebi typically takes 60 days to give its approval. For Lavasa, however, the process has been delayed as the regulator has been seeking several clarifications around complaints against it, both in the court and public forums. We have been actively responding to all the queries,” said one of the bankers.

The lawsuits against the company relate to disputes over land acquisition, alleged violations of environmental and Sebi regulations.

Promoted by Hindustan Construction Co. Ltd, Lavasa City is being developed on the banks of Warasgaon lake in Pune. It will be spread across 18,000 acres, according to Lavasa’s current master plans.

Lavasa filed its second application for an initial public offering (IPO) on 1 July. The Sebi website shows that the last communication exchanged between the regulator and the firm was on 29 September.

“There is likely to be more delay,” the second banker said. The number of legal cases against the firm and its directors has risen from 56 to 156 since it first attempted a public listing in 2010, the draft prospectus showed.

The firm has also cut the size of its IPO from ₹ 2,000 crore to ₹ 750 crore, according to the prospectus.

Mails and calls to a Sebi spokesperson did not elicit any response. A Lavasa spokesperson said the report was speculative and misleading.

Lavasa and several other Indian firms are seeking to take advantage of the surge in local stocks to raise funds. Videocon D2H Ltd, ACB (India) Ltd, PNC Infratech Ltd, Uniparts India Ltd and Adlabs Entertainment Ltd have filed share sale documents with Sebi.

Lavasa’s first IPO attempt was shelved after the environment ministry issued a show-cause notice to the firm alleging violations of environmental impact assessment notifications in November 2010.

The ministry had directed the company to maintain status quo on all construction and development activity. While the order has been lifted, the matter is being decided by the Bombay high court.

Sebi has been seeking details regarding some of the cases against the company that are already mentioned in the disclosure submitted as part of the IPO application, a Lavasa official said on condition of anonymity. “While Sebi has been looking to fast track the approval process, it has also increased the level of due diligence,” he said.

The official said Lavasa had reduced its IPO size because valuations have declined in the past four years and investors have become more cautious.

There have been some new enquiries and investigations against Lavasa that can have an impact on the public offer, according to another banker with knowledge of the development.

“In a scenario when the markets are down, even a single case pending against a firm can dampen investors’ interest for the IPO. The markets, however, are quite buoyant and hence the investors will now judge the IPO issues after weighing the implications that specific cases may have on the company’s business,” said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd.

Lavasa is also under the scanner of the Central Bureau of Investigation (CBI) in connection with a bribe-for-loans case, involving Money Matters Financial Services Ltd and
several state-run banks including Central Bank of India, Bank of India, Punjab National Bank, and LIC Housing Finance Ltd.

In 2010, CBI arrested three executives at market intermediary Money Matters for allegedly bribing executives in finance companies to issue loans running into thousands of crores to clients. “The CBI by way of an order dated 23 November 2011 directed our company to produce certain documents in relation to the financing and investment facilities of our company with Central Bank of India, handled by Money Matters and other public financial institutions and banks and processed by Money Matters or otherwise in fiscal year 2009-2010. Our company replied to the CBI by way of its letter dated 27 November 2011, and submitted the necessary documents,” the draft prospectus stated.

Earlier this year, CBI busted another bribe-for-loans racket with the arrest of S.K. Jain, chairman and managing director of Syndicate Bank, and a middleman, Pawan Bansal, who ran Mumbai-based Altius Finserv, a boutique investment banking firm. Bansal is a former employee of Money Matters.

In its draft prospectus, Lavasa has declared that the registrar of companies (RoC) had asked the firm to clarify if it was in compliance with sections 67(3) and 73 of the Companies Act.

In its prospectus, the firm has stated that RoC in 2013 had alleged that Lavasa had “more than 50 debenture holders as per its annual returns for fiscal years 2011-12 and 2012-13”.

According to section 67(3), in case an offer is made to less than 50 people, it can be treated as a private placement, but if it is made to 50 people or more, it should be treated as a public offer, which requires the prior approval of Sebi.

While Lavasa clarified that it had only eight debenture holders for the period in question, it also said that the company may be subject to “further requests for information or clarification regarding the letter from the RoC in future”.

In the past, Sebi and Subrata Roy-promoted Sahara group have been locked in a legal battle over issuance of optionally fully convertible debentures to more than 50 people without approval from the market regulator.

malvika.j@livemint.com