Stock market regulator SEBI has ordered a detailed investigation into the Vaswani Industries IPO whose listing was recently withheld.
In an ad interim ex-parte order issued on Thursday, SEBI said that the investigations on irregularities in the IPO will be completed within 30 days from the date of the order so that a decision on whether the company should be allowed to list or not is taken within the statutory time limit provided in the Companies Act.
SEBI has directed the promoters and directors of Vaswani Industries and the intermediaries connected with the issue to fully cooperate with the investigation proceedings.
On the day of issue closure (May 3), the qualified institutional buyer (QIB) book was subscribed 0.16 times, the non-institutional investor book was subscribed 11.29 times and the retail individual investor book was subscribed 6.82 times. The issue price was fixed at Rs 49 to a share and allotment was done on May 10 2011.
On May 13, SEBI received about 100 complaints from investors pointing to large scale withdrawals/ rejections in the issue. SEBI advised BSE and NSE to withhold the listing of the company through an email on the same day.
The complaints alleged that large scale withdrawals/ rejections had happened on account of reasons like stop payment of cheques, stop allotment of securities, cheques returned (bounced) and wrong dated cheques, in an attempt to artificially inflate subscriptions in QIB and HNI categories and mislead the retail investor.
The complaints also alleged that the move was pre-planned by the promoters, lead managers, registrar and some operators, and demanded that listing of securities be stopped until the investigations into application withdrawals were completed. Investors also demanded an exit option prior to listing so that they could withdraw the securities allotted to them and also help them take a call to invest or not based, on post listing performance.
This is due to the fact that under subscription in one investor category is offset by giving higher allotment to other categories that have oversubscribed within the prescribed limits for each category.
Issue proceeds
Bankers to the issue were advised by SEBI to keep the issue proceeds of Rs 49 crore in the public issue account until further instructions, and the registrar was asked to provide broker-wise, terminal-wise summary of withdrawals along with the reason for withdrawal.
A preliminary analysis of data on withdrawals and rejections showed that 3,813 applications were withdrawn out of which 666 (Rs 31.32 crore) pertained to cases where bids were punched in the system but cheques were not sent for payment. And in the remaining 3,147 applications, 2,785 cases saw cheques bouncing to the tune of Rs 101 crore.
Two terminals contributed 60 per cent of total applications withdrawn and three contributed to 61 per cent of withdrawals based on number of shares.
It was also seen that all HNI applications filed on the issue opening day at the cap of the price band amounting to Rs 44.6 crore or 90 per cent of the issue size were subsequently withdrawn.
The final outcome would be decided post detailed investigations and in case listing permission is not granted the company is liable to repay the money to all investors within eight days of the date of refusal of listing or within 70 days from the issue closing date whichever is earlier. If this is not done, the company and its directors are liable to repay the money along with 15 per cent interest a year.