SHALL DO ANYTHING……
KUCH BHI KAREGA
Target Company
-AstraZeneca Pharma India Limited
The
65 page SEBI order
on AstraZeneca Pharmaceuticals AB Sweden in the matter of delisting of AstraZeneca Pharma India Limited (AstraZenca
/ AZPIL) reads like a crime novel with minute details of all the murky deals. Things that should not have happened, did
happen. The saga of delisting started in 2004. The first attempt to delist
failed because the discovered price of Rs.3,000/- was not acceptable to the
promoters. The second attempt to delist failed in 2010 as the shareholders did
not approve the delisting proposal and the special resolution could not be
passed.
In its third attempt, AstraZeneca Pharmaceuticals AB Sweden, in its wisdom, made a full proof plan for 100% successful delisting. AFSOS SEBI KI PAINI NAZAR PAD GAYE
As on 31st March 2013, public shareholding in the company
was only 10% as against the prescribed norm of 25%. AstraZenca was required to
achieve 25% minimum public shareholding by June 03, 2013. ICICI bank was
appointed on 28th March 2013 as the merchant banker for OFS, and if
required, for delisting. Even before making an OFS, the company and merchant
banker were planning for the subsequent delisting.
On
26.3.13 AstraZenca conducted the OFS. Elliot Group, along with 6 FPIs cornered
94% of the shares offered. It was a deliberate strategy to subsequently get the
shares of AZPIL delisted at its own convenience and price. The OFS price was
deliberately fixed at a significant discount to the market price. Even though on the previous two trading days,
i.e., May 24, 2013 and May 27, 2013, the price of the scrip on NSE closed at Rs.
694.05/- and Rs. 805.3/- respectively, the OFS floor price was fixed at Rs. 490/-.
The low floor price for the OFS attracted more bids, but at a lower price. In
the last moment, seconds before closure, Elliot Group revised
its bid and cornered 94% of OFS shares. The cut-off price after book building,
was determined as Rs. 620/- per share.
On
1.3.14 Delisting was announced by AstraZeneca Pharmaceuticals AB Sweden. With
the help of Elliot Group, the delisting was successful. SEBI passed an order
dated June 24, 2014 staying the delisting. This order was challenged before the Bombay High Court, and
subsequently, before the SAT, by two public shareholders of AstraZeneca,
namely, Shri Satish Bhatt and Shri Pankaj Bhatt. Hon’ble SAT vide order dated
September 11, 2015 remanded the matter back to SEBI with a direction to
complete the investigation and to pass appropriate orders within 6 months.
SEBI
passed the order on 5th June 2020. This order censures the acts of
the parties involved, the company's promoter and the FII group. This no
doubt is a very mild order by SEBI. The reason for such a mild order could be,
IMO, that the parties are foreign entities and as given in the order :
“Elliott Group as on date have already divested their stake in the
Company through the open market and the entire public shareholding of the
Company is at present dispersed among large number of shareholders which has
prima facie dissipated the probability of any foul play by the Company or its
promoter in the matter of delisting. Under the circumstances the threat of a
manipulated delisting and its adverse impact on the interest of the minority
shareholders being no more looming and actions and misdemeanours of the
Noticees having failed to hurt the interest of the shareholders, any collusive understanding
that was in existence prior to mooting
delisting proposal and passing a
resolution thereon, can be said to have lost its relevance at present.”
Mr. Rajesh Gajra; Cogencis,
Friday, Jun 12 (2020)
Attempted
fraud must draw more than just censure
When a company is caught colluding with a
large shareholder to defraud other shareholders in a delisting attempt, it must
ideally invite commensurate penal action that goes beyond just censure.
But censure is all that Astrazeneca Pharma
India's Swedish promoter and a foreign institutional investor group received in
an attempted delisting case and a preceding offer for sale issue investigated
by the Securities and Exchange Board of India.The Astrazeneca Pharma
Case Was One Of A Clear Attempt To Defraud Minority Shareholders And Is Fit For
Stringent Penalties.
IMPORTANT EXTRACTS
FROM THE ORDER:
In
order to give the reader a proper perspective of the matter, Extracted below
are some important paras from the SEBI order dated June 5, 2020.
3.
In view of the aforesaid findings from the examination, SEBI passed an order
dated June 24, 2014, with the following important observations: -
(i)
ICICI, i.e., the selling broker, had conducted more than 60 road shows prior to
the OFS. The OFS floor price was at significant discount to prevailing market
price; still the Elliott Group was able to acquire 94.02% of the total quantity
of shares offered through OFS.
(ii)
The floor price was kept at ₹490 against the previous day's closing price of
₹805.3, which led the bids (2.84 times oversubscription) in the OFS hover
around this price only. This facilitated the Elliott Group to mop up almost all
the shares (i.e., 94.02%) offered in OFS at an average price of ₹625.35 which
was lower than previous day's closing price by ₹179.95.
(iii)
The OFS bid prices of the Elliott Group were significantly above the floor
price and the then prevailing indicative price.
(iv)
The Elliott Group entities had placed their bids in the OFS in synchronised
manner through 6 FIIs/Sub-accounts and the final bid modifications were made
few seconds ahead of the market closing.
(v)
The Elliott Group entities had no previous exposure to the scrip of AZPIL.
(vi)
The delisting offer was subsequently made within one year of OFS.
(vii)
Earlier delisting offers were unsuccessful/rejected as the retail shareholders
were either demanding a higher price of ₹3000 per share or were not keen to
delist the Company.
(viii)
Therefore, the shareholders’ resolution passed subsequently, as required for
delisting, could not have been successfully passed without favourable voting by
the Elliott Group.
(ix)
The Elliott Group and the participating FIIs, with their shareholding, i.e.,
15.52% of the equity share capital were in a position to ensure that the
delisting was successful even if none of the other public shareholders offer
their shares.
(x)
The Elliott Group by virtue of their 15.52% shareholding as against the 8.89%
shareholding of all other public shareholders, had the potential to influence
the delisting price in the impending delisting offer in a manner that could be
detrimental to the interest of the other public shareholders.
(7)
As early as February 10, 2013, before the formal appointment of ICICI, in reply
to an e-mail from Mr. Ian Brimicombe (VP - Corporate Finance, AZ Group) about
assessment of the presentations made by participating banks, Mr. Pawan Singhal
(Company Secretary - AZPIL) indicated his preference for selecting ICICI as
ICICI would prefer to contact the existing key shareholders informally to get a
sense about possibility of delisting at an acceptable price and if that is not
feasible then would go full throttle on OFS.
(9)
In a series of e-mail correspondences pertaining to prospective investors
profiles during OFS road shows between April 20, 2013 and April 26, 2013, it is
seen that there were queries from Mr. Ian Brimicombe (VP, Corporate Finance, AZ
Group) and Mr. Himanshu Agarwal (CFO - AZPIL) to ICICI as to whether the
potential investors in AZPIL would like to participate in future delisting of
AZPIL, and what would be their investment horizon, risk appetite and investment
amount, etc.
(10)
ICICI through a reply dated April 25, 2013 to Mr. Ian Brimicombe clarified that
investors would be open and in fact would welcome the possibility of delisting.
The return expectation would vary with each investor. Further, ICICI offered to
work towards developing a consensus amongst investors so that delisting premium
is reasonable from the AZ Group perspective while still being acceptable to
investors from a return perspective.
(11)
AZPAB and ICICI met Elliott Advisors (HK) in Hong Kong on May 15, 2013. The
Elliot Group had no previous exposure to the scrip of AZPIL. The interest in
the scrip was apparently a result of a road show meeting between AZPAB, Elliott
Advisors (HK) and ICICI official on May 15, 2013.
(16)
Further, the Elliott Group, while participating in the OFS bid, amended its
order in the last minute of the OFS bidding by increasing bid price
substantially (from around ₹580 - ₹592 to ₹620 - ₹630) to corner the shares in
OFS. It cornered 35,25,773 shares out of 37,49,950 available in OFS by
modifying bids in the last few minutes.
(27)
After the OFS, the Elliott Group and the promoter of AZPIL have entered into
discussions with each other. Mr. Sachin Mistry (Associate Portfolio Manager,
Elliott Advisors (HK) Ltd.) met the promoter’s, (i.e., AZPAB) representative
Mr. Ian Brimicombe (VP - Corporate Finance, AZ Group) separately after the OFS
on three occasions starting from July 8, 2013.
(28)
Thereafter, on July 09, 2013, a telephonic request was made from AZPAB/ AZ Group
to ICICI seeking Internal Rate of Return (hereinafter referred to as “IRR”)
calculations to buy out shareholders of AZPIL including the Elliott Group. In
the said discussion Mr. Ian Brimicombe (VP - Corporate Finance, AZ Group) and
Mr. Ravi Talwar (Sr. VP, ICICI) participated.
(29) It shows that as early as July 9, 2013
AZPAB and ICICI were already engaged in working out the amount of money that
may be required to buy out shareholders including the Elliott Group
shareholders at various IRRs.
(30)
After seeking the IRR details from ICICI, the Elliott Group and Mr. Ian
Brimicombe (VP - Corporate Finance, AZ Group) again met in London on July 08,
2013. Pursuant to their request, on July 16, 2013 ICICI shared an excel sheet
containing IRR calculations to enable AZPAB to buy out shareholders of the
Company including the Elliott Group.
(31)
Thereafter, vide email dated August 16, 2013, Mr. Ian Brimicombe (VP -
Corporate Finance, AZ (4) All public investors other than the Elliot Group were
unaware that the Elliot Group held 15.5% of shareholding which was sufficient
enough to help in passing a delisting special resolution and in determining the
price of delisting through the RBB mechanism.
Group)
asked ICICI to prepare a revised excel sheet to determine sensible limit and
range for negotiations with the Elliott Group. Vide e-mail dated August 16,
2013, Mr. Ian Brimicombe informed ICICI that it would decide its sensible
limits for “negotiation with Elliot”.
(32)
On August 20, 2013, Mr. Sachin Mistry (Associate Portfolio Manager - Elliott
Advisors (HK) Ltd.) met Mr. Ian Brimicombe (VP - Corporate Finance, AZ Group)
at the Annual General Meeting of AZPIL. Thereafter, they met on October 03,
2013 in London.
(35)
Mr. Ian Brimicombe (VP - Corporate Finance, AZ Group) vide his email dated
September 23, 2013 addressed to Mallon Mark and David Smith (EVP Operations)
with copy to Simon Lowth (then CFO and Executive Director), attaching therewith
a delisting paper, stated the Elliott Group is willing to sell its stake. The said
email stated “We have a single large shareholder owning 15.1% who can determine
the delisting outcome and is inclined to sell short term. If we wait, his
holding may dissipate over time meaning, it would be more difficult to delist.”
It was further mentioned that “Our largest shareholder fund would expect an
internal rate of return of at least 25% and possibly as high as 40%. This would
be subject to negotiation.” Thereafter, Mr. Ian Brimicombe (VP - Corporate
Finance, AZ Group) had a telephonic conversation with Mr. Sachin Mistry
(Associate Portfolio Manager, Elliott Advisors (HK) Ltd.) on November 14, 2013.
(4)
All public investors other than the Elliot Group were unaware that the Elliot
Group held 15.5% of shareholding which was sufficient enough to help in passing
a delisting special resolution and in determining the price of delisting
through the RBB mechanism.
Consideration
of issues:
11.
I have gone through the contents of the SCN, replies received in the matter,
documents available on record and the written as well as oral submissions made
by the Noticees and also the representations made by Mr. Pankaj Bhatt and Mr.
Suresh Bhatt. The main allegation against the Noticees is that after having
tried unsuccessfully twice in getting the shares of AZPIL delisted, the
promoter, i.e., AZPAB (Noticee 1) had devised a scheme or an artifice to get
the scrip delisted and as a part of such arrangement the promoter had managed
to get the shares of AZPIL subscribed by certain entities, namely, the Elliot
Group entities (Noticees 2 - 8) through an OFS so as to ultimately get the
scrip delisted successfully in collusion with those Elliot Group entities.
Therefore, after completion of the OFS, in order to ensure the delisting of the
scrip of AZPIL, the Elliot Group and AZPAB (the promoter of AZPIL) allegedly
engaged in negotiations for influencing the delisting price to suit their
mutual interest and convenience. The acts of such negotiations that continued
between AZPAB and the Elliot Group, with a view to circumvent the fair
delisting price discovery through reverse book building mechanism, have been
alleged to be fraudulent in nature. The SCN further alleges that all other
public investors, other than the Elliot Group entities, were unaware that the
Elliot Group entities held 15.5% of shareholding which was sufficient to help
AZPIL to get a special delisting resolution passed and to influence the price
of delisting in the manner desired by both the parties to such negotiations. It
is thus alleged that the promoter of AZPIL and the Elliot Group entities were
in talks since July 8, 2013 pursuant to which the promoter had struck a deal
with the Elliot Group entities vide which, the Elliot Group entities were to
buy shares of AZPIL through an OFS and would again sell those shares back to
the promoter at the time of delisting of the equity shares of the Company. It
has been accordingly alleged that the Noticees have violated the provisions of
Regulations 3(b), (c), (d) and 4(1) of the PFUTP Regulations, 2003.
39.
To sum it up, I wish to observe that the Noticees have conducted their affairs
in a very self-effacing manner with an ambition to fulfil their goal of
delisting with the support of the Elliott Group’ stake without any
consideration of the commercial interest of the retail shareholders. However,
providentially their plan to execute their ambition through an artifice or
device in the form of pre-arranged negotiated price for delisting could not
fructify due to judicial intervention and the interest of the minority public
shareholders remained protected and saved from being adversely affected by the
probable manipulative actions of the Noticees. From the representations
received from Mr. Pankaj Bhatt and Mr. Suresh Bhatt, I am apprised that the
Elliott Group as on date have already divested their stake in the Company
through the open market and the entire public shareholding of the Company is at
present dispersed among large number of shareholders which has prima facie
dissipated the probability of any foul play by the Company or its promoter in
the matter of delisting. Under the circumstances the threat of a manipulated
delisting and its adverse impact on the interest of the minority shareholders
being no more looming and actions and misdemeanours of the Noticees having
failed to hurt the interest of the shareholders, any collusive understanding
that was in existence prior to mooting delisting proposal and passing a
resolution thereon, can be said to have lost its relevance at present. At the
same time, considering the manner in which the Noticees had privately engaged
amongst themselves post OFS for the prospect of delisting the scrip of AZPIL
without involving or taking into account the interest of other retail
shareholders, the Noticees cannot be absolved from the charge of violation of
the provisions of the PFUTP Regulations, 2003 by indulging in unfair trade
practice which was glaringly evident in their self-serving conduct itself. The
series of private correspondences/ discussions that ensued amongst the Noticees
as soon as the OFS was over and after the Elliot Group was found to have
acquired 15.52% of stake in AZPIL, all behind the back of other public
shareholders only to explore the possibility of delisting with the help of the
Elliott Group, smack of unethical, opaque and discriminatory conduct of the
Noticees displaying unfair treatment to other retail public shareholders, apart
from indulging in a collusive scheme to get AZPIL delisted to suit their mutual
interest.
40.
In view of the foregoing, I, in exercise of the powers conferred upon me under
Sections 11(1) and (4), and 11B read with Section 19 of the SEBI Act, 1992,
hereby strongly censure the Noticees for displaying such gross professional
misconduct and fraudulent trade practice in trying to arrive at a private
arrangement amongst them so as to help the Company sail through the delisting
procedure in a manner that was intended to dilute the Reverse Book Building
procedure for discovery of the delisting price of the scrip as per stipulations
in the SEBI (Delisting of Equity Shares) Regulations, 2009 thereby jeopardising
the interests of the retail public shareholders and investors of the company at
large.
