Why SAT greenlit Tamilnad Mercantile Bank’s IPO

Mumbai: The initial public offer (IPO) of Tamilnad Mercantile Bank received 83% subscription on the first day of opening on Monday. It received bids for 72,56,228 shares against 87,12,000 shares on offer after going through a series of legal hurdles in courts, with the markets regulator and tribunals. The quota for retail individual investors was subscribed 1.53 times while that of QIBs received 73% subscription and non-institutional investors got 58%.

The IPO was given a go-ahead by Securities Appellate Tribunal (SAT) on 2 September as it dismissed appeals by a clutch of minority shareholders for a stay on the offer process.

In its 16-page order, which became public on Thursday, SAT gave three grounds to dismiss the appeals filed by the investors of Tamilnad Mercantile Bank. 

One: No appeal was made to allow them to tender their shares. Two: An exemption from filing a fresh draft red herring prospectus (DRHP) does not infringe on the legal rights of the shareholders; Three: The IPO process is disclosure-based and all adequate disclosures have been made.

The matter pertains to six overseas investors --Robert and Ardis James Co., East River Holdings, Swiss Re Investors (Mauritius), Kamehameha Mauritius, Cuna Group (Mauritius), and FI Investment, wherein they approached the SAT with a plea to injunct the IPO. The common objection by all the shareholders was the company’s decision to withdraw the offer for sale (OFS) from the public issue.

In January this year, all these six shareholders separately filed writ petitions before the division bench of Bombay high court. They sought that the Securities and Exchange Board of India (Sebi) should be directed to accept the DRHP only after permitting the petitioners (shareholders) to participate and tender their shares on a proportionate basis.

SAT in its order said that no such appeal was made before it, therefore, making it a clear ground to dismiss the appeal. “We are of the opinion that when the writ petition was pending it was not open to the appellants to file the present appeals questioning the DRHP and or its withdrawal by some of the shareholders with regard to OFS,” said a bench led by Justice Tarun Agarwala.

Additionally, the tribunal said that the shareholders had all the right to appeal against the Sebi’s decisions only if they were ‘aggrieved’ by the order.

In the matter, the shareholders had asked to participate in the OFS. The OFS, however, was entirely withdrawn on 11 May by the board of the bank. Following which the bank approached Sebi seeking exemption from filing a fresh draft red herring prospectus. This was allowed by Sebi in its 12 May order.

SAT in its order held, “In our view the appellants cannot be aggrieved by the granting of exemption by Sebi. No legal right of the appellant has been infringed. No injury or legal wrong has been suffered by the appellants and, therefore, in our opinion the appellants not being an “aggrieved person” could not have filed the appeals questioning the legality and veracity of the Sebi’s order”

The tribunal said that Sebi adheres to a disclosure-based framework and only requires accurate and fair appropriate disclosures; it does not regulate on merits or approve an offer document like the DRHP.

It added with a view to ensuring that sufficient disclosures are made in the DRHP to enable the investors to make an informed decision, the application of the bank seeking exemption from strict enforcement of Regulation 300 of the ICDR Regulations for withdrawal of OFS without filing a fresh DRHP under issue of capital and disclosure requirements (ICDR) was taken into consideration in accordance with the aforementioned provisions.