The mysterious UBOs surfing in India’s small-cap froth

Sebi has promised to look into criticism about promoters of public companies likely circumventing ownership rules by owning shares through foreign funds in their own companies, For now, the ultimate beneficial owner of several Mauritius-based funds that have invested in Indian companies remains a mystery.
Sebi has promised to look into criticism about promoters of public companies likely circumventing ownership rules by owning shares through foreign funds in their own companies, For now, the ultimate beneficial owner of several Mauritius-based funds that have invested in Indian companies remains a mystery.


Some Mauritius-based funds made outsized investments into a small group of small-cap companies. In some funds, the identity of the ultimate beneficial owner remains a mystery

BENGALURU : Elara India Opportunities Fund (EIOF), an entity registered out of the island country of Mauritius, was once big on Adani stocks. At the end of December 2022, it owned 1.6% in Adani Enterprises Ltd, 3.62% in Adani Energy Solutions, and 1.62% in Adani Total Gas Ltd. 

Elara has since pared its ownership in the Adani companies, but has been busy betting big on Indian small-cap stocks. The fund has committed 771 crore to small-cap companies, subscribing to preferential shares issued by eight of them since November 2022, a Mint analysis shows.

Elara is not the only Mauritius-based fund backing small-cap companies. There are also Aries Opportunities Fund, Forbes EMF, Coeus Global Opportunities Fund, and AG Dynamics.

These five funds have invested 1,600 crore in 17 small-cap companies since November 2022. They accounted for 40% of the 3,953 crore raised by these 17 companies between 1 November 2022 and 29 February 2024, according to a Mint analysis. These companies had raised the money through preferential issues of shares to the public.

Elara invested in eight of these companies while Aries Opportunities Fund invested in nine. Forbes EMF and AG Dynamics have invested in seven companies each, and Coeus Global Opportunities Fund in six companies.

Incidentally, in nine of these companies, entities controlled by alleged online gambling kingpin Hari Shankar Tibrewala and his business associates had invested or committed to invest another 202 crore.

As Mint reported earlier (here and here), entities linked to Tibrewala had an at least 1% stake in 13 small-cap companies and participated in the preferential allotment of 13 firms.

Tibrewala, Indian investigating officials believe, is the alleged Dubai-based mastermind behind the Mahadev online betting scandal, illegal proceeds from which are suspected to have been funnelled into small-cap stocks.

On 8 March, the Enforcement Directorate, the agency that fights economic crimes in India, labelled Tibrewala a ‘hawala operator’, saying he had used several entities to launder illicit money made from the betting app into buying stocks in India.

Also read: The curious case of UAE-based funds in India’s small-cap bubble

To be sure, the fact that the Mauritius-based funds and Tibrewala and his associates invested in the same company doesn’t necessarily mean that they acted together.

Still, this large investment by a group of investors into a small group of companies may have played a role in India’s small-cap bubble. Information about the investments surfaced when Suraj Chokhani, an associate of Tibrewala, was arrested by ED.

How does a preferential share allotment inflate stock prices?

Think of a company that is expected to return money to shareholders through dividends or a share buyback. Before a formal announcement is made, investors often jostle to buy its shares, which eventually leads to a surge in share price. The same is the case with a company planning to raise money by issuing convertible warrants that convert into shares for a group of investors.

According to a Bengaluru-based analyst who researches small-cap stocks, using channels such as WhatsApp or Telegram, speculation is built up, drawing retail investors to companies that would raise money through preferential allotment of shares.

A preferential share allotment, like a share buyback, is done at a premium to the current share price. A full subscription to the preferential share allotment suggests that there is indeed value in a business. This makes investors put in even more money at an already high price. And that’s how a stock price bubble is born.

Ten of the 17 small-cap companies mentioned above that went for preferential share allotments saw their share price more than double in the 12 months before a formal announcement was made.

For instance, Rathi Steel and Power Ltd saw its share price surge 1,120% in the year before the board stamped its approval for a preferential share allotment. Shares of Cupid Ltd, a contraceptive maker, and Servotech Power Systems, which offers chargers for electric vehicles, jumped 574% and 349%, respectively.

When raising money through preferential shares, many of these 17 companies counted a number of investors, sometimes running into hundreds.

One of these companies was Gensol Engineering Ltd, an Ahmedabad-based firm that installs ground-mounted and rooftop solar panels. Gensol raised 900 crore through preferential shares: 133 crore from the promoters and the balance 767 crore from 161 public investors. About 20%, or 157 crore, came from three Mauritius-based funds. And another 5% was invested by Tibrewala. 

Elara India Opportunities Fund, Aries Opportunities Fund, and Coeus Global Opportunities committed 65.32 crore, 47.9 crore and 43.55 crore, respectively. Tibrewala, through Tano Investment Opportunities Fund, which is domiciled in Mauritius, and JE Impex DMCC, registered in Dubai’s free trade zone, committed 43.55 crore and 8.71 crore, respectively.

Following the ED’s decision to seize the shares owned by funds linked to Tibrewala, at least a dozen small companies told the exchanges they didn’t know much about the funds participating in the preferential allotment of shares; that these funds were merely shareholders and that the promoters had nothing to do with the owners of these offshore funds.

The surging valuation of small-cap stocks made Madhabi Puri Buch, chair of the Securities and Exchange Board of India, the country’s market regulator, express concern in public. “There are pockets of froth in the market. Some people call it a bubble, some may call it froth," she said at an event last month.

Also read: Anatomy of a smallcap stock scam

“Frothy market valuation in mid-cap and small-cap stocks have been a big concern for regulators in India recently. Such a high concentration of few funds in the preferential allotment of shares in midcap and small-cap stocks raises an eyebrow," said V. Balakrishnan, a former chief financial officer and board member at Infosys Ltd. 

“Sebi should look at disclosure of ultimate beneficial ownership (UBO) of these funds, especially in midcap and small-cap stocks, to bring greater transparency to the markets and to protect public investors," he added.

The UBO mystery

In the wake of criticism of whether promoters of public companies were circumventing ownership rules by owning shares through foreign funds in their own companies, Sebi has promised to seek more details, based on economic interest and control, from foreign investors. But for now, the UBO of Mauritius-based funds remains a mystery.

A Mint review found four Mauritius-based funds disclosing more than one UBO.

Take the example of AG Dynamics Funds, which has promised 104 crore to seven small companies. When AG Dynamics invested in Stratmont Industries, a firm that makes and trades coking coal and metallurgical coke, Srishti Dixit was identified as the fund's UBO in a filing dated 6 January. Two months later, Variman Global Ltd, a Hyderabad-based IT services firm, a company AG Dynamics invested in, mentioned Paul Boskma as the UBO in a filing dated 7 March.

AG Dynamic Funds could not be reached for comment as there was no contact information provided on its website.

Srishti Dixit is the founder and managing director of ONS World, a firm she set up in June 2022. ONS World helps entities registered in Mauritius and also offers compliance services. Mint could not ascertain the identity of Boskma.

Nexpact Ltd is another Mauritius fund that was set up in June 2015. Saleem Aziz Habib Al Balushi is the UBO of Nexpact, according to an answer in Parliament by the junior minister of finance, Pankaj Chaudhary, on 19 July 2021. The minister shared the UBOs of 137 foreign portfolio investors in response to a question asked by Mahua Moitra, a former member of Parliament.

But according to a 6 January filing by Stratmont Industries, a company Nexpact invested in, Ashwanee Ramsurrun Vimesh is disclosed as the UBO. Nexpact could not be reached for comment as there was no contact details provided on its website.

Vimesh is the chief executive officer of ONS World. Before joining ONS World in July 2022, Vimesh was a director with Amicorp, a corporate services firm. Earlier, he also served as a director on Acropolis Trade and Investment Ltd, and Xcent Trade and Investment Ltd, two Mauritius-based funds that are investors in Adani group firms.

Another example is Eminence Global Fund PCC, whose UBO is Infinity Investments Manager Ltd, according to a 6 January filing by Stratmont. But a 7 March disclosure by Variman Global names Grigor Jabishvili as the UBO. Eminence Global has invested in both Stratmont and Variman Global.

Mint could not ascertain the identity of Jabishvili.

Eminence Global could not be reached for comment.

Finally, Tano Investment Opportunities Fund’s UBO is also identified as Vimesh, according to a 12 March filing by Cellecor Gadgets Ltd, a Delhi-based company that buys and sells consumer electronic goods like TVs and smartwatches. But Gensol, in a filing dated 9 February, named Tibrewala as Tano's beneficiary owner.

Twists and turns

The big question: Was ONS World managing Tano Investment Opportunities Fund, Nexpact and AG Dynamics?

Here’s the twist.

When reached for a comment, Dixit of ONS World, in an email dated 8 April, said: “Our duties are strictly confined to fund administration and fiduciary responsibilities from Mauritius and we do not have operations in India. Thus, any indication or claim of our names being utilized as beneficial owners is deeply concerning and entirely unauthorized from our side."

Dixit further added: “We do not believe that there are such open disclosures with our names as beneficial owners. To the best of our knowledge, we maintain no beneficial ownership in any funds, and such activities are not tolerated within our organization as this is not our scope of activities. Any instance suggesting otherwise would constitute an illegal activity, and we are committed to investigating this matter thoroughly in any case where our names may have been used. We are sure our clients or us have not made such incorrect disclosures."

On 9 April, we reached out to Stratmont Industries asking for a clarification on the discrepancy in the identity of UBOs. The same evening, the company informed the exchanges of a “typographical error and inadvertent mistake on the part of consultants".

“We hereby clarify and bring it on record that Mr. Ashwanee Ramsurrun & Ms Dixit Shrishti are not the Ultimate Beneficial Owners," said Stratmont Industries.

Mint could not ascertain if Sebi allows companies to make such corrections more than three months after it initially makes a disclosure.

Also read: When Cupid stepped up to Tourism Finance, and walked back

Ravi Agarwal, managing director of Cellecor, also said it was an “inadvertent error" to identify Ashwanee Ramsurrun Vimesh as the UBO and pointed to the company’s clarification made to the exchanges on 1 April.

“This is to inform you that inadvertently by oversight Mr. Ashwanee Ramsurrun name was mentioned as Ultimate Beneficial Owner of Tano Investment Opportunities Fund, whereas he was a director thereof," said Cellecor, in a filing dated 1 April. Cellecor had named Vimesh as the UBO of Tano on 12 March.

Cellecor’s latest disclosure now states that the UBO of Tano Investment Opportunities Fund at the time of investment in the company was the estate of Late Charles Endler Johnson. Mint could not ascertain who Johnson is.

An email sent to Tibrewala on his ownership of Tano Investment Opportunities Fund went unanswered.

Aries Global Opportunities Fund was set up in June last year, according to the government-run corporate registry of Mauritius. It has committed 381.71 crore across nine Indian companies in the past 10 months. Aries identifies Nitin Singhal as the UBO. Mint could not independently ascertain the identity of Singhal.

Forbes EMF, founded in 2015, and Coeus Global Opportunities Fund, founded in October 2017, have together committed 580 crore in Indian companies. According to the disclosures made to Indian stock exchanges, the UBO of both Forbes EMF and Coeus Global is Li Hoy Choo Li Kim For, a licensed auditor registered with Mauritius’ Financial Reporting Council.

Li Hoy Choo Li Kim For could not be reached for comment.

An email sent to Raj Bhatt, who is disclosed as the UBO of Elara India Opportunities Fund went unanswered. Bhatt is also the founder and chief executive of Elara Capital, an investment bank.

We will update this article as and when he responds.

“What really baffles me is that even after more than a year when questions were raised on lack of transparency into who is the ultimate beneficial owner of these Mauritius-based entities, there does not seem to be any change in the status quo. The market continues to be left in the dark as to who the final beneficiaries of these funds are," said Sharmila Gopinath, a specialist adviser for India at the Asian Corporate Governance Association.

“Mauritius-based funds are still a blackhole for the regulator when they try to know the people who are behind these entities," added Gopinath.

Many interests

Market watchers, meanwhile, have also questioned the role research and advisory firms play in propping up small-cap companies. In some cases, the research firms go beyond what they are supposed to do—that is provide research services to investors—and invest in companies themselves. 

To be sure, this is not illegal but questions persist on whether such research firms ought to be investing themselves. Some market participants have pointed to the role one such firm, Omkara Capital, plays.

Founded by Varinder Bansal, a former journalist, Omkara Capital claims to arm investors with in-depth research that would help them invest in well-run companies, and in turn, maximize their capital. Founded in November 2020, Omkara counts 700 ultra-wealthy individuals and more than 1,000 individuals as subscribers.

While it helped investors find better candidates, Omkara also invested its own money, including that of its directors, in three companies: it committed 35.15 crore to buy preferential shares of Man InfraConstruction, Rathi Steel and Power and Fineotex Chemicals (it later withdrew from subscribing to shares offered by Fineotex Chemicals).

Tano Investment Opportunities Fund, which discloses Tibrewala as the UBO, is one of the subscribers to Omkara’s reports. Tibrewala, through the funds that describe him as the UBO, subscribed to the preferential share allotment made by seven firms, including Rathi Steel and Power and Man InfraConstruction.

Finally, Tano Investment also picked a 2% stake in Omkara Capital in April last year, followed by an additional 3% stake in December.

“Tano Investment Opportunities Fund owns around 5% equity in Omkara Capital based on the potential in our business," Bansal said in an email response to Mint

“Entire capital raised is at the same valuation for Tano and other investors, therefore Tano here is nothing more than an investor for us. And the valuation has been obtained from an independent valuer, thus complying with all the rules and regulations," Bansal added. 

There are eight other investors in Omkara Capital Pvt Ltd, apart from Tano Investment Opportunities Fund, Bansal informed.

Mint could not find any disclosure on Omkara raising funds from outside investors, but Bansal maintains that the names of new investors in his firm should reflect by the end of the financial year.

Bansal declined to talk about his engagement with Tibrewala.

“Omkara Capital Private Limited has been appointed by M/s Tano Investment Opportunities Fund (registered FPI) to provide research services wherein we were required to give our view/opinion/report about the company’s business," said Bansal. “Thereafter, it is completely their decision whether to do the investment in the company or not. We don’t have any control on how someone uses our research. We have an in-house database where the reports are IP protected. We have no control on which client invests in which companies."

Bansal said that Omkara has provided research support to 80 companies for the Tano Investment Opportunities Fund.

“We got approached to invest in Man Infra and Fineotex Chemicals by a reputed investment banker in Mumbai, and for Rathi, a banker in Delhi approached us," said Bansal, declining to share names of the intermediaries. 

“We have invested in Rathi Steel based on the fundamental research work done by Omkara Capital. Like all our investments, we did a plant visit, spoke to industry experts and the entire work was done before investing," he added. “In Man Infra and Fineotex Chemicals, we decided to invest based on the growth and valuations of the company. However, we have withdrawn our investment decision in Fineotex."

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