TEXT OF SUGGESTIONS GIVEN TO SEBI ON IPO REFORMS

SMALL  INVESTORS’ WELFARE ASSOCIATION Regn No. F-72744 (M) Email : SirenBajao@gmail.com

Ref. Consultation paper on review of price band and book building framework for public issues

       Please abolish the Price band system: Why insist on price bands? Why not abolish it completely and simplify the process? This has served no purpose. If  at all, it has served negatively . A normal educated person just cannot apply independently.   

2.       Please simplify the process of making an application in IPO: although the amount of information to be filled has been greatly reduced to minimal, the main problem stems from the price band. How to calculate the lot size and number of shares to be subscribed. One will need an expert to do that. Under the present regime of price band system, for making an application in an IPO, one must take the help of brokers and experts. You may try it out in your office like a fun game and see how many of the officer who volunteer to participate in the exercise are able to complete an IPO application and how much time it takes to fill it up,

3.       Just as a legal compulsory compliance, a miniscule price difference is made in IPO:   the issuers/merchant bankers have to give 2 price points, without there being much difference in the upper and lower price. SEBI has recently directed  that there should be greater difference in the price bands. But why insist on price band at all. All successful IPO are always on the upper price bands. Even in unsuccessful IPOs when price bands were revised lower, the ultimate subscription was on the upper price band.

4.       Please abolish the Lot size in IPO: With the electronic mode of trading, there is no concept of lot size as it was under the vintage OUTCRY system. One can easily sell even 1or13or189 or 1000 shares with equal ease. When there is no lot size for trading in the market, why have lot size for IPO application? Lot size has been made only because of price bands and the desire of SEBI to help small investors. Thus the lower integer number obtained by dividing 15000 by the price is declared as lot size.  

5.       Allow investors to make an informed decision- make future projections compulsory:  As a mischief legislation, projections and all forward looking statements were banned by SEBI.  As a consequence, the investors have to play blind. When we buy even a bottle of shampoo, we read the promise that it will make our hair soft and silky etc. but the issuers are able to collect thousands of crores without making any promise or any obligation on themselves that how they will make investors’ money grow! Today, investment in IPO is just because of the euphoria created by the brokers and grey market premium. In our guess not even 10% of the investors in Zomato would not know that the company is not likely to report profit in the next couple of years. If projection was made compulsory, such euphoria could not have been created.

6.       Mandate proper information in the IPO announcements:  Please check again any 50/100 announcements that appear in Newspapers for IPO and see what value an investor derives from it? These statutory announcements are actually advertisements for merchant bankers etc. Kindly check   percentage of space dedicated to information that will help an investor make a decision. It will not be more than 20%.

7.       Make KEY INFORMATION MEMORANDUM mandatory:  This should be short and crisp. Some basic information like area of operation, products, competitors, key customers, geographies that it caters to, GPM, EPS, PE, Industry PE, a statement from the management why a person should invest in the company and any other information thought fit by you.

Our pointwise suggestions in the desired format is given below. In case you plan to have any formal meeting and discussion, we shall be happy to participate in the same.

 

Sr. No.	Reference Para of the consultation paper	Suggestion/ Comments	Rationale
1	4.1	The price band system should be abolished completely	As given in detail above a.       Serves no purpose b.       Makes the process of share application very complicated c.       Failed to live up to its expectations d.       Does allow calculation of simple ratios like PE etc. e.       Neither the investors nor the issuers find it useful but just abide as legal compliance
2	4.1.1	No need for minimum price band in public issue	Serves no purpose
3	4.2	Yes. This is a very good move. NII category may be further divided into two sub-categories. But we differ on the Band and allocation   i Sub-category 1: 50% of the allocation earmarked for NIIs shall be for application sizes ranging above INR 15,001 and upto INR 10 lakhs.     ii. Sub-category 2: 50% of the allocation earmarked for NIIs shall be for applications above INR 10 lakhs.	This will enable self funded midsized investors get better allocation. There are many small investors who do not realise that in a heavily oversubscribed issue and application of minimum 15000 or upto 2,00,000 will hold the same chance of allotment under the present system of allocation. We therefore suggest that a.       small investors / Retail category should have only one size 15,000   b.       NII Sub-category 1 INR 15,001 and upto INR 10 lakhs c.       NII Sub-category 2 above  INR 10 lakhs     This suggestion is mainly from the angle of making the equity culture more popular and distributing available opportunity for gain to larger number of people rather than allowing smaller number of people earning large profits.
4	4.3	proportionate allotment in case of NII category should not be discontinued	SEBI’s one of the objectives is to grow the capital market. Proportionate allotment will make many more happy investors. No one will consider himself unlucky, or manipulation  because it is a sheer mathematical calculation. On the other hand draw of lots will make some very happy and many very frustrated. A repeat of non- allotment may wean away many investors from the capital market.
5	4.3.1	Yes, NII category be subdivided into two, with one sub-category exclusively for not so large NIIs.	As explained in para 3 above.
6	4.3.2	50%	As explained in para 3 above.
7	4.3.3	Sub-Category-1 INR 15,001 and upto INR 10 lakhs.   Sub-category 2: above INR 10 lakhs. Note- there must be a cap on the maximum size of one single application. No application can be for more than the size reserved for that category.	As explained in para 3 above.   In sub-category -2 if the maximum size cap is not there, it may lead to some kind of manipulation. I am remined of the manipulated issued of Bharat Rodd Networks.  The matter was reported to SEBI my the undersigned but unfortunately no corrective action was taken and investors lost heavily. The promoter Group SREI, is now under liquidation.
8	4.3.4	Allotment methodology for NII category – should be Proportionate.	Draw of lots makes IPO a game of chance, even for larger amount. Moreover it is against the basic objective of SEBI to grow a healthy capital market. More number of allottees mean  higher participation by the population.

 

 

 

SEBI -Please Make your actions truly helpful for investors not only penal to defaulters

TEXT OF LETTER WRITTEN TO SEBI

SMALL INVESTORS’ WELFARE ASSOCIATION

     23^rd  October  2021,

 Ref. Open Offer pending for more than 20 long years-- by Dahiya family of Polo Hotels Ltd.

Sub. Make your actions truly helpful for investors not only penal to defaulters

This is an Extreme SOS situation. The shareholders’ value of more than 200 Crores will be lost completely. SEBI’s and SC’s 4 orders are ignored by the defaulters,  investors are bleeding but the mischiefs are enjoying the fruits of their misdeeds.

Very brief case history is- The Dahiya family took over Hotel Polo Ltd. On 31.03.99 and tried to cheat the investors by giving a wrong price for such acquisition and brought out an Open offer @ Rs. 8.75 against their actual acquisition price of Rs.23.75. SEBI ordered them to announce offer @ 23.75. They filed appeal in SAT 3 times, Punjab & Haryana High Court 2 times, Hon’ble Supreme Court 5 times.

There are many shareholders who have died in last so many years. One of the largest Public shareholder, a gallantry award winner soldier is about 75 now waiting for justice for last 20 years. He and Kommalam Sardana were the first to complain. While Komamalam Sardana died, the soldier is also counting his last days and has been requesting us to do something to get justice for the investors.

We request you to please look into the matter urgently and  if thought fit take strong action as suggested by us earlier: 

             

1.   Immediately remove the Acquirers and their nominees  from the Board of directors of the company. As per the Regulation 22 & 23 of SAST 1997, the Acquirers are not entitled to sit on the Board of the company till such time they have completed the offer or deposited 100% of the amount in an Escrow account.

2.    For day to day management of the company, appoint an administrator or a professional on the lines of RP (Resolution Professional) under the IBC, or allow the minority shareholders to appoint the Board of directors and a managing committee to manage the hotel.

3.    Impound the passports of all the Acquirers or have “Look-out” notice issued so that they cannot flee the country.

4.    Expedite   prosecution proceedings against Mr. Abhey Ram Dahiya, Mr. Amardeep Dahiya and Mr. Pankaj Dahiya, for their failure to comply with SEBI order of June 3, 2019.

5.    Speed up the process of recovery of funds by selling the properties of the Acquirers and deposit the money in escrow a/c to complete the Offer.

6.    As provided in SAST 1997 Regulation 44 (a) appoint a merchant banker for  selling share of the defaulting  acquirer 

7.    As provided in SAST 1997 Regulation 44 (d) Freeze the  voting or other rights  on these shares.( You have already frozen the DP account.)

8.    Appoint a merchant banker to complete the process of Open offer, any shortfall ( approx. 10 Crores only) in the fund may please be temporarily made up from the huge corpus of IPEF and subsequently recovered from the defaulters. 

PRABHAT DAIRY- MILCHING ITS SHAREHOLDERS

1.     With its share price at around Rs. 93 (market cap Rs. 900 Cr app) on January 22 2019, Prabhat Dairy announced the sale of its dairy business constituting 98% of its revenues, to a French company for Rs. 1700 Cr, almost twice its market capitalization. Share price zoomed 20% till Rs. 110 and collapsed 30% to Rs. 79 - all of this on the same day. Price strangely closed over 15% down on the day of the announcement, perhaps a first. The business was transferred as a slump sale and the sale of a step down subsidiary's shares, for a consideration of Rs. 1700 Cr. Later on, it transpired that the consideration was actually Rs. 1700 Cr + Rs. 180.85 Cr for ‘agreed debt repayments’ (Company’s subsequent letter to SEBI dated March 13 2020) i.e. a total of Rs. 1880.85 Cr. So the first figure to remember in this saga is the sale consideration of the entire business was Rs. 1880.85 Cr (i.e. Rs. 192.56 per Share) 

 

2.     The Company promptly issued a statement on March 25 2019 (one day before the EGM scheduled for approval of the dairy business sale transaction) that “it is the intention of the Board to distribute the net proceeds of the transaction to the members of the Company in due course after meeting tax & indemnity obligations…”. Same day, the Company issued an update that Escrow account is being set up for the utilization of the net transaction proceeds and a Board Committee (including three independent directors) would monitor the use of proceeds for the shareholders. The EGM approved the transaction even though proxy firms advised voting against it. Almost 99% of the institutional voters (present & voting) voted against the resolution but the resolution was still approved by overwhelming majority as few shareholders actually never cast their votes while the promoters always do.

(The author has been crying hoarse to SEBI to implement its own Takeover code especially Regulation 4 of SAST 2011 which mandates an open offer for takeover of control even without buying shares. Till date, SEBI has never implemented it even though SEBI finds it so important that it has been carried forward in the new 2011 Takeover code from the earlier 1997 code. )

 

On March 27 2019, the Company said “…it is clarified that no part of the proceeds from the transaction will be deployed towards residual business…”.

 

It was specifically mentioned at the March 2019 EGM that app. 1000-1200 Crore may be available for distribution to shareholders, this is the second figure to remember. This was after accounting for taxes on the transaction, transaction costs, debt repayments and claw-back provisions as per SPA with the French company. The transaction was accounted for in FY 2018-19 books and assets were classified as "held for sale" and subsequently the sale consideration was duly received.

3.     On September 5, 2019, without distributing the net proceeds as per announced intention, the Company stunned the market announcing its delisting proposal.

4.     On complaints of impropriety from several shareholders and lack of satisfactory explanations, SEBI on July 17 2020 approved the appointment of Grant Thornton as forensic auditor for FY 18-19 and FY 19-20. The Company and its MD refused to co-operate with the forensic auditor repeatedly and even questioned its independence.

5.     On July 31 2020, the Company informed the Stock Exchanges that the net amount available after debt repayment, indemnity provisions under SPA, transaction costs and taxes is Rs. 878.29 Cr. (Company had earlier informed SEBI that Rs. 854 Cr had been transferred to Escrow account set up for distribution to shareholders). This is the third figure to remember, net amount available for distribution Rs. 878 Cr.

6.     Vide its interim order on October 20 2020, SEBI said “…the replies given by the Company clearly indicate that the Company has been evasive as regards the details concerning the amounts stated to be lying in the Escrow account for distribution to shareholders…. the Company and its MD have repeatedly failed to co-operate with the forensic auditor….”. It directed the Company to deposit Rs. 1292.46 Cr to an interest bearing Special Escrow account with SEBI and facilitate the forensic audit. The order was appealed by the Company and on November 20, 2020, SAT ruled in favour of the Company saying delisting needs to proceed irrespective of forensic audit. Another SEBI order was given in December 2020, again SAT quashed the revised order and directed the delisting to be approved on March 4 2021 and finally the delisting proceeded at breakneck speed.

7.     The delisting was declared successful on March 31 2020 at a declared Exit price of Rs. 101 with Promoters garnering 95.4% (earlier 50.1%) at a cost of Rs. 447.3 Cr. + say another Rs. 45 Cr. to acquire the balance ie Rs. 492 Cr. So the fourth and final figure to remember is that Rs. 492 Cr will be the final bill for Promoters to acquire 100%.

In a nutshell, of the Rs. 1881 Cr. total consideration, only Rs. 492 Cr gets distributed and Promoters acquire 100%. Is this fair? Will the forensics audit ever be completed and will SEBI ask the Company for upward revision of the Exit price?

THE BIGGER QUESTION REMAINS: WHY DOES SEBI NOT AMEND THE REGULATIONS AND MANDATE FULL DISTRIBUTION TO ALL SHAREHOLDERS WHEN THE ENTIRE BUSINESS HAS BEEN SOLD? 

HELLO, GOOD MORNING SEBI.

Tata Steel - Bhushan Steel merger EGM today March 26: VOTE AGAINST THE RESOLUTION

SMALL INVESTORS’ WELFARE ASSOCIATION    

SirenBajao@gmail.com 

The Tata Steel - Bhushan Steel merger EGM today; March 26:

SHAREHOLDERS SHOULD VOTE AGAINST THE RESOLUTION FOR MERGER

1) THREE YEARS FOR COMPLETION:  The likely completion of the merger will happen in May 2021, literally on the third anniversary of the announcement of Tata Steel as the victorious bidder in NCLT. Three years ? For a company the stature of Tata Steel ?


2) THE SHARE SWAP RATIO: Interestingly, BSL performance has zoomed in recent quarters, what with the wheels of fortune smiling again at the auto industry (BSL is the country's leader in auto grade steel). Based on the latest annualised quarterly results, the BSL shares are currently quoting at a PE of less than 2 times pegged to the share swap ratio (1 share of Tata Steel to be allotted against 15 shares of BSL), while Tata Steel shares are trading at a PE close to double digits. So the question shareholders are naturally asking, "is the share swap ratio fair to BSL shareholders ?"


3) THE RATIO WAS DECIDED THREE YEARS BACK: The author justified the ratio in his mind thinking that it is unfair to see today’s performance, probably the valuation was based on 2017-18 financials when BSL was showing losses (has been under SFIO investigation for some time now) and the Singhals were cooking their books to stay afloat and solvent and Tata Steel was their white knight in shining armour. So for academic interest, he decided to dig out the Valuation report and Fairness opinion of 2018-19 and was in for a shock.

4) THE VALUATION REPORT: The fairness report simply says that the valuation is fair basis Valuation report, Scheme documents etc. So it all boils down to the Valuation report, which describes four methods:

(a) Income Approach: not considered  by Valuer as Tata Steel did not provide its projections

 

(b) Cost Approach: not considered as historical coat of assets for a loss making company “has limited relevance in valuation of a business as a going concern”.

 

c) Market Price Method: Average of last six months monthly average prices (VWAP) which concludes 1:15

 

(d) Market Price Method II: Comparable Companies Method where EV/Ebitda of comparable companies is to be considered. Then strangely, instead of comparing the EV/Ebitda of BSL with that of other comparable companies, it simply takes Enterprise Value of BSL, reduces liabilities (including preference shares) etc. and divides by no of shares to justify result of c above. So much for comparing valuation of similar companies. How could Tata Steel accept this, float it to the stock exchanges and file its merger scheme basis such a glaring error ? But we guess, when your reputation of governance is as strong as Tata Steel, you can get away with murder.

 

WHAT DO SMALL SHAREHOLDERS DO ? We do not question the buyout of BSL by Tata Steel, that is done and BSL is now 72%+ owned by a WOS of Tata Steel and that is fine. However, why short-change BSL existing shareholders? Let BSL continue as a listed entity, its share is worth well over Rs. 100 (December quarter EPS is Rs. 8.35 i.e. Rs. 33.40 annualised EPS). 

 

The court convened shareholder meeting is today, March 26 2021 at 3pm and e-balloting has already started. Majority of the minority has to approve (Tata group cannot vote). Should shareholders not vote for continuing BSL as an independent step down listed subsidiary of Tata Steel ? After all, it does not prevent Tata Steel from leveraging synergies; after all we have so many examples of parent and subsidiary both being listed (Birla’s, Vedanta..... and even Tata’s

 

SHAREHOLDERS SHOULD DEFEAT THE PROPOSAL FOR MERGER TODAY.