Promoteres of a raft of companies have called off preferential allotment of shares to themselves following the market meltdown.
MUMBAI: Promoteres of a raft of companies have called off preferential allotment of shares to themselves following the market meltdown.
These include Television 18, Valecha Engineering, Jyoti Structures, Dish TV and LIC Housing Finance.
The cancellation flurry and in some cases even extra-ordinary general meetings by fair-weather investors has upset expansion plans and has forced some small investors to ask for tighter Securities and Exchange Board of India (Sebi) regulations.
Sebi should amend the regulations and ask for an escrow account with a deposit of 10-25% from those who have committed to invest.
Barring Valecha Engineering and Jyoti Structures, who admitted to the prevailing sentiment in the market to have forced their hand to withdraw the preferential offers, others have given varying explanations that include a failure to obtain approval from a foreign regulator.
“The company should file a suit to enforce the agreement,” says Aspi Bhesania, who owns shares in some of the companies in question.
The promoters of Valecha Engineering were supposed to acquire 19 lakh shares at Rs 322 per share. The Valecha share ended on Monday at Rs 208, about 35% lower than the preferential issue price.
Kavita Valecha Sharma, a senior official in the engineering firm, confirmed that prevailing market sentiments had a role to play in the cancellation of preferential issue.
“It is difficult to predict the markets,” Kavita explained. “And it is fair to expect investors to buy shares closer to the market price,” she reasoned.
To be fair to the Valechas, they were upfront on the reason. While they have alternate plans to raise funds, there are other companies that are yet to finalise an alternate fund raising plan.
“When I asked an official from Jyoti Structures, they said their solicitors who framed the agreement had advised them against pursuing the foreign investors,” Aspi said.
Hordes of preferential issues were announced, while the Sensex cantered to a peak of 20783.
Promoters and institutional investors stampeded in to lock-in subscriptions of shares through the preferential route, fearing that their shares would soar to unaffordable levels.
They wanted to lock in to shares before it broke free to ratchet up more gains.
“The mistake some of the investors did was to make a commitment at the high point of the Indian market,” an official affiliated to a firm that had the ignominy of seeing an investor breaking their commitment.
In the case of Television 18, it was the promoters that backed out of their commitment to invest in their own company at the pre-determined price of Rs 523.
They decided not to subscribe to the 10 million warrants which were supposed to be issued to them and instead decided to increase their stake through the creeping acquisition by buying shares from the market. The TV 18 share is currently quoted at Rs 392.35, about 25% lower than the preferential issue price of Rs 523 per share.
LIC Housing called off the preferential issue and cancelled the extra-ordinary general meeting after its Gulf investor — First Gulf Bank —- stated their failure to obtain the required regulatory approvals.
In the case of Dish TV, it was not a promoter infusion. Indivision Partners, a firm led by Kishore Biyani of Pantaloon, was to invest Rs 250 cr for a 4.9% stake in the direct to home major.
The amount was to be invested at Rs 100 per share by issue of fresh warrants; however, Indivision has declined to subscribe to the warrants. Indivision lost their verve as Dish TV shares are currently quoting at Rs 61.60 per share, about 38% lower than the preferential issue price.
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