As per the prospectus, the objects of the offer were to enable promoters to repay loans taken by them from SWSOLAR within 90 days of listing
SEBI (ICDR) Regulations, 2018 allow for the dissenting shareholders to be provided an exit offer by the promoters
Sterling and Wilson Solar Ltd promoters’ non-fulfillment of dues owed to the company tantamounts to a change of objects of the IPO stated in the prospectus and promoters should provide an exit route for IPO investors, said InGovern, a governance analysis firm.
As per the prospectus, the objects of the offer were to enable promoters to repay loans taken by them from SWSOLAR within 90 days of listing. However, promoters Shaporji Palonji Company and Khursdhed Daruwala have only repaid ₹1000 crore till December out of the ₹2654 crore they owe to the company.
“The non-fulfilment of obligations of the promoters on repayment of loans has resulted in a significant 60% destruction in value of wealth of shareholders as the share price has crashed from a high of Rs. 780 per share during listing in August 2019 to Rs. 310 per share as on January 6, 2020, resulting in a loss of Rs.1700 crore (approx. USD 250 million) for minority shareholders. The erosion in value can be attributed solely to the action of promoters as the investors had taken part in the IPO under the information that the loans would be repaid by the promoters within the stipulated timeframe," said Ingovern in a report.
This has resulted in aggrieved minority public shareholders. SEBI (ICDR) Regulations, 2018 allow for the dissenting shareholders to be provided an exit offer by the promoters, in cases where there is a change in objects of the issue/ offer in the IPO prospectus.
“Hence, as per Section 35 of the Companies Act, the promoters, directors, the Company itself as well as the merchant bankers to the IPO are liable to pay compensation to all shareholders who have suffered loss in wealth due to the fall in the share price of SWSOLAR," said Ingovern in the report.
In this case, where shareholders have suffered significant erosion in value of their holdings solely due to the non-utilisation of funds as per the objects of offer of the IPO, SEBI must force the promoters to provide an exit offer to shareholders at a price as per SEBI (ICDR) Regulations, pointed out Ingovern in a press note.
Shriram Subramanian, founder and MD of InGovern said, “In order to redeem this reputation, the SP group should provide an exit option for public minority shareholders. This is a demand from minority shareholders and SEBI should force the promoters to provide and exit option for minority public shareholders."
Shares of Sterling and Wilson Solar Ltd gained 4.99% to close at ₹322.05 on Thursday on the NSE. While the benchmark index, Nifty gained 1.58% to close at 12215.90 points.
In response to a report published by InGovern the promoters responded that the objects of the offer was to provide liquidity to the shareholders along with the benefits of listing of the equity shares including but not limited to enhancing visibility, brand image.
Promoters added as it was an Offer-for-Sale(OFS) the promoters were under no obligation to mention the utilization of proceeds. In fact the promoters made this disclosure in good faith even though it was not required by law.
Credit rating agency, ICRA was unable to withdraw its earlier rating due its requirement to have an NOC from each and every consortium banker. This matter took time and has now been completely resolved and ICRA has withdrawn its rating of SWPL on January 6, 2020. India Ratings is the agency which does the rating of SWPL and in their report there is no such comment of ‘non-coperation’.
For fall in share price, the promoter said the Board of Directors while approving the repayment schedule levied additional interest of 100 basis points and there is no financial loss to Sterling and Wilson Solar Limited on account of reschedulement and it is illogical to link the stock price reduction to this aspect. The stocks fell 59% from its issue price of ₹780.