Sebi finds small m-bankers at it again

Many boutique outfits which help companies raise money from the stock market have been found to be guilty of violating securities laws in a regulatory investigation of initial public offers (IPOs).

The Securities and Exchange Board of India (Sebi) has sent out letters to 8-10 companies in March asking for information on top investors in the company and end-utilisation of funds raised via their IPOs.

Investigations which had been ongoing even before the letters went out, have revealed violations by many little-known merchant bankers, according to two people familiar with the matter.

“There are a number of small merchant bankers who seem to have acted with operators and companies in connection with various violations,” said one source.

“Sebi is looking into end-utilisation of funds and are even investigating companies in which the share price has not fallen drastically after the IPO,” said another person.

Out of the 38 merchant bankers who helped companies raise money through IPOs in 2011, only 12 are from the top ten, according to league tables which rank them on the basis of value and number of deals in the equity capital market space.

The rest are all smaller banks, many of them little-known outfits.
According to one market expert, these merchant bankers tend to be unknown names since they work selectively with one or two initial public offers a year.

In a typical offer, they would ask promoters to give them shares at a discounted price of say Rs15. They would then set up the IPO at a price of Rs50, then run-up the share-price to Rs75 after listing and unload on investors.

“They arrange the money required through financers to ensure that the IPO gets the required subscription. They get a cut from the promoter as well as the operator,” he said.

This is the second such investigation of IPOs in recent times and the second time that relatively unknown merchant bankers have been found to have manipulated the market.
In December, Sebi cracked down on seven initial public offers for irregularities including diversion of IPO proceeds to operators active in the stock.

The stock market regulator barred seven companies from raising fresh capital, prohibited over 50 officials associated with the companies as well as other entities involved in the IPOs from dealing in securities, and also forbid merchant bankers associated with the issues from taking on new assignments in the orders which were released on the Sebi website on Wednesday.

The merchant bankers who were barred at the time include Almondz Global Securities, PNB Investment Services, Chartered Capital and Investment, D&A Financial Services, Atherstone Capital Markets.

There are 19-30 IPOs under investigation. All the cases pertain to calendar year 2011. Orders on at least some of the companies that Sebi investigated in the latest round of scrutiny are expected soon, according to one of the people quoted above.