Where Monies are there there will be Stink !….and SEBI, as the Regulator, needs to wear a Gas Mask at all times !
The Stink is being seen in the Promoters Ghias of Innovassynth Technologies (IST) raising it’s Equity Capital from Rs 55 crs to Rs 74 crs at par of Rs 10….the Value of IST is much more….Moreover shareholders of Innovassynth Investments (ISI) should have also been offered these shares at Rs 10 too…the sad irony it appears is that ISI itself rejected the fresh Investment Proposal in IST at par to facilitate the allotment to others….ISI is awaiting SEBI Clearance for Listing without an IPO,while IST remains unlisted
Know the background first
Ghias were the Promoters of Indian Organic Chemicals (IOC)….It was rechristened Futura Polyesters (FP) and the Chemicals Division was moved to a new company from August 1,2002 called Innovassynth Technologies (IST)…..FP held 23850070 shares of FV Rs 10 in IST…this was over 40% of the Equity Capital of Rs 55 crs of IST…the rest was held by Rajan Raheja Group,Rakesh Jhunjhunwala and Ghias…they were also on the Board of IST….Rajan Raheja is on the Board of Prism Cement,EIH Hotels (Oberoi Hotel Chain in which Reliance too has a major stake now),Exide,Supreme Petrochem and Sonata Sofware
FP initially decided to transfer their entire shareholding in IST to the shareholders of FP directly under a Scheme of Arrangement…an initial Ratio of 10:23 was recommended and the shareholders of FP would get the shares of IST directly and free in this ratio of their holdings in FP
However a revised Scheme was formulated…and the reasons for this are becoming more apparent now…Under this Scheme FP would first tranfer it’s entire Investment in IST to another Company ISI…In turn ISI would allot free the shareholders of FP the shares of ISI in the ratio of 5:11….Thus FP Shareholders would also own ISI shares which would get listed…and ISI in turn held the Investment of over 40% of the Equity in IST….FP would also follow this with a Rights Issue at par to bring back the Networth after adjusting the IST Investment against Equity Capital and then Specific Reserves
ISI was to get listed in 2009….BSE apparently even cleared this listing in July 2009 with the condition that SEBI Approval was required as the listing would be without any IPO…ISI applied to SEBI for this permission….till date SEBI has not given it….Why !?…SEBI has been raising queries….ISI claims it has answered all of these and are pursuing this matter with SEBI quite feverishly…what was the nature of these queries is not known…neither the SEBI website has any clues,nor is ISI revealing what these queries were.
So has SEBI delberately delayed issuing the clearance for Listing ?….in order to facilitate the raising of Equity of IST at par from Rs 55 crs to Rs 74 crs ?…SEBI must clarify to clear any such suspicion……ISI Shareholders were not directly offered this fresh Capital for subscription….Why !?…….Who has been offered and been allotted these Rs 19 crs Face Value of Shares in IST !?…..Why were they offered at par ?….ISI claims that IST is loss making and the Private Equity Players had valued it below par and it was not posssible to have an IPO of IST because of this low valuation…and I’m sure that IST will claim it had to raise funds fast to fund losses and for working capital !……However ISI Chairman claims the future is bright for IST !……..Moreover who has done the Valuation of IST !?…..It holds over 70 acres in Khopoli,near Mumbai…it owns 7% of Actis Biologics (subsidiary of US based biopharma Entity) Equity,easily worth over Rs 75 crs…it’s R & D Efforts will bear fruit in the years to come…there is no way that the real Value of IST is just Rs 10 FV or below this !…..the proof will be visible when ISI does list after SEBI Clearance….With the fresh Rs 19 crs raised at par in IST,the Equity Stake of ISI in IST has been diluted from over 40% to just 32%….ISI has stated that it’s Board of Directors had considered the Proposal to invest further in IST at par but felt it was advisable not to do so !….Why did they let go of something that was worth so much more when they were considering getting it at just FV of Rs 10 ! ?…This seems to have been done only to benefit the Promoters,Ghias and other Vested Parties…....Clearly the Board of Directors of ISI have deliberately failed in performing their fiduciary duties to protect their Shareholders interests……instead they have seemingly jeopardised these interests in favour of Promoters Ghias and other Vested Investors who were allotted IST Shares at just Rs 10
This fresh IST Equity of Rs 19 crs is worth probably more than Rs 100 crs…this will become apparent when ISI lists after SEBI Clearance….listing would be based on the Value of IST…and the listing would be over Rs 60….How !?…. Value of IST will be perceived as close to Rs 1000 crs,based on its Value of 70 + acres of Real estate at Khopoli + 7% of Actis Equity held + Future Fruits of it’s R & D activities….ISI hold 32% of IST…thus it’s holding would be valued at over Rs 300 crs….this translates to over Rs 130/share…with a haircut of 50% to 60%,ISI should list at Rs 60 atleast……It is scandalous,if discovered after further due diligence and investigation, that the Promoters,Ghias and other vested Investors have looted shareholders of ISI by Hundreds of crs by not offering them directly the Fresh Equity of IST at par but cornering the full Rs 19 crs raised for themselves….ISI has deliberately let it’s holding in IST drop from over 40% to 32% by rejecting the Investment Opportunity to favour others to corner the shares
SEBI,as regulator,is ordained to act without Fear or Favour if it wants to uphold the sanctity and credibility of the markets…..It must do so in this case too……If necessary and indciated,It must cancel this Fresh allotment of Rs 19 crs Equity in IST at par to favoured Investors or ask them to raise the Issue price of this fresh allotment from FV Rs 10 to a Fair Price based on a fair Valuation of IST worked out by a Credible and Reputed Audit Firm
EXTRACTED FROM FUTURA POLYESTERS ANNUAL REPORT 2009
SCHEME OF ARRANGEMENT:
In pursuance of the order passed by the Honble High Court, Bombay sanctioning the Scheme of Arrangement filed by the Company under Sections 391 to 394 of the Companies Act, 1956, the Company transferred, in accordance with the Scheme, the shares held in Innovassynth Technologies (India) Limited in favour of Innovassynth Investments Limited (IIL). IIL had in turn allotted five (5) equity shares of IIL against every eleven (11) equity shares held in the Company, to those shareholders of the Company whose names appeared in the Register of Members as on the book closure dates. The relevant shares so allotted by IIL had been credited to the beneficiaries account of those holding shares in demat and share certificates have been sent to those holding
physical shares. IIL has since applied to Bombay Stock Exchange Limited for listings its equity shares.
RIGHTS ISSUE OF EQUITY SHARES
The Draft Letter of Offer in respect of the issue of 2,62,10,839 equity shares of Rs. 10/- each at par aggregating to Rs.26,21,08,390 on Rights basis was filed with the Bombay Stock Exchange Limited and Securities & Exchange Board of India (SEBI). The Company has received the comments/observations from SEBI and a final decision on the issue will be taken by the Board at the appropriate time.
Many are recommending Futura Polyesters,available at below par of Rs 10 as a fast multi bagger…..My sincere plea is to be aware of such Promoters and vested interests who seemingly care a hang for minority shareholders….you are supporting them by supporting Futura Polyesters…..They and their Circle of Crony investors would have seemingly unfairly enriched themselves having cornered the New Fresh Equity of Rs 19 crs in IST at par….it’s value as I said will be over Rs 100 crs and probably even over Rs 200 crs if and when ISI lists at over Rs 60
…and don’t be surprised if you see a reverse merger in the future between a listed ISI and an unlisted IST !….it will give an opportunity to the IST shareholders who have been allotted this fresh Equity of Rs 19 crs at par to encash obscene gains of Hundreds of Crs !
Is this a Con or a Scam or just short changing the shareholders of ISI who are also those of FP,if they yet hold FP shares…most yet hold them ?….you be the judge…..is there a devious gameplan in operation ?…is there criminality involved ?….that’s for SEBI and other authorities to investigate
I hope Shareholders of ISI realise that they have been short changed and exploited and taken for granted here by their own Board of Directors who by deliberately rejecting to invest more at par in IST have diluted the value of their holding in IST and adversely impacted all of them….I hope Shareholder Activism is strongly activated here….It is high time SEBI ordains Minority Shareholder Representation on the Board of Directors
What I can observe here is that there is scarcity of a host of critical issues….. Corporate Governance,Transperancy,Accountability,Fiduciary Duties of the Board of Directors,Proper Valuation of IST to state a few
….is it any surprise then that the Number of Equity Investors have fallen over the years in our Stock Markets…..they enter ,or should I daresay are lured,with excited expectations….only to be suckered and butchered by a nexus of unscrupulous promoters and their cronies in the Field of Capital Markets !
ADDED ON FEBRUARY 3,2011 IN BOLD RED FOR A REASON
Below is the link for the Information memorandum dated January 25,2011 and signed by Director S B Chatterjee for ISI and Mr S B Ghia for IST…..this is required to be created for BSE Listing for Innovassynth Investments Ltd (ISI)…runs into 265 pages….and provides more fodder and missing links and data to show that ISI was created for a pre meditated purpose and gameplan where Rahejas and Ghias benefit at the expense of 38000 + shareholders of ISI who were the shareholders of Futura Polyesters
Just a few interesting points that smacks clearly of why ISI Route was adopted rather than directly allot IST shares held by Futura Polyesters to shareholders of Futura Polymer
- From the Capital Structure Chronology and Shareholding Details of Top 10 shareholders now and two year earlier in ISI and IST I have figured out the exact number of rights let go by ISI in Innovassyth Technologies Ltd (IST) …79.34 lakh nos….and that Satish Raheja and Ghia promoted company,Bhupati Investments & Finance Pvt Ltd (BIFPL)picked most or all of these at Rs 10
- Rakesh Jhunjhunwala has not subscribed fully to his rights…Why?…. he also resigned as Director of IST and put his rep Utpal Sheth on the Board
- The Boards of ISI and IST have two in common,Ghia and Sami…while ISI Director Dr B Sahu was also earlier a Director of IST but stepped down is now CEO and President of IST !
- Interestingly BIFPL is also a 12.43 % Equity stake shareholder in ISI while it now is the third largest shareholder in IST with a 9.73% stake….So question arises that why did Ghia who owns BIFPL,as Director of ISI reject the IST Rights issue for ISI and allowed ISI stake in IST to thus drop from 42.94% to 32.22 %….but chose directly for his company BIFPL to not only take up it’s rights in IST as a direct shareholder but also to subscribe to more than that it was entitled by taking up part of what ISI let go !….Did ISI actually renounce their Rights or just did not subscribe ?
- The Key Question in this whole drama is what is the value of IST ?…..Ghia and Rahejas want us to believe that’s it’s a loss making company below FV Rs 10 !…on the books maybe ! but the reality is quite different….begin with audited networth of Rs 89 crs at March 31,2010+Incremental Value over Rs 66 crs (2009 Reval) of Khopoli Property + Value of IST’s 7% stake in Actis India + Long Term Contracts with BASF ….192 MT order jumped to 302 MT in 2010….+ Huge Potential that will now be leveraged once facilities have been approved after due diligence by leading pharma and chemical companies…assuming Value of IST is Rs 1000 crs,then the Equity being Rs 74.02 crs (FV Rs 10) the value of each share is Rs 135….thus the rights of 79.34 lakh shares let go at Rs 10 by ISI would be worth Rs 107 crs !….this benefit goes to Satish Raheja(his holding in IST jumped 10% + to 45.44% and he is the top sharehoder) and Ghia’s BIFPL (their holding in IST jumped from just over 2% to now 9.73%) at the expense of 38000+ shareholders of ISI
- I suspect to realise these gains ,after listing ISI on BSE they will merge IST into listed ISI
That in an increasing awareness environment of stricter Regulation and better transperancy and Corporate Governance this blatantly shameless and nonsense gameplan has been allowed to happen speaks very poorly of our systems of checks and controls…..even the auditors are of good repute N M Raiji & Co….but everybody,even SEBI, seems to be absolving themselves stating it is not our responsibility to comment on or expose this on this as our role is restricted to our terms of Reference…..
Company claims that outside PE Investors have valued IST as a loss making below par company !…Really ! ? Who ?…name them ! and that the Rights Issue was to fund losses !…Goodness Gracious !….A proper transperant valuation is called for of IST by a reputed audit firm….In 2008 IST gave Actis Biologics 5 acres and was given 530000 shares of Actis Biologics in return at Rs 30…This represents 7% of Actis’s Equity…IST thus has an Investment of Rs 1.59 crs in Actis…Recently Actis is reported to have placed/sold 10% Equity at US $ 80 million !…so work out for yourselves what is the value of this 7% stake held by IST in Actis !
IST Valuation holds similar or better potential and Promoters have acted like Gold Diggers in cornering additional Equity over that entitled in Rights at Rs 10 at the cost of 38000+ shareholders….Same Set of Promoters for ISI and IST ensured that ISI let go the IST Rights
Shareholder Activism is required ….there are after all 38000+ shareholders of erstwhile Futura Polyester who now also hold shares of ISI….The Mumbai High Court which sanctioned the Scheme of Arrangement on July 4,2008 should be again approached to overturn this in light of the preplanned misuse of the two rights allotments made subsequently on December 12,2008 (50 lakh shares at par Rs 10) and January 19,2009 (1.35 cr shares at par Rs 10)…these could be termed as material post High Court Order events that were planned but not disclosed at the time of approaching the Court to sanction the Scheme of Arrangement….something like auditors adjusting for material post balance sheet events
Now everyone wants to know what Innovassynth Investments will list at ?
Assuming you got the Futura Polyesters in the Jan 2008 high at Rs 45/46 before it became ex-entitlement for shares of ISI,then 11 shares would have cost you @ Rs 500….you received 5 shares of ISI free on these 11 shares….The current Price three years later of Futura is Rs 7….thus the 11 shares have a value of Rs 77….but they cost you Rs 500…Therefore theoritically the 5 shares of ISI must fetch you Rs 423 for you to break even…that is @ Rs 85 per share !…but will it !?
The answer to this lies in the perceived Valuation of Innovassynth Technologies
As you know ISI has no employees or any operation.It was set up merely to take over the 2.38 crore shares held by Futura Polymer in IST at par….Therefore it derives it’s value from the value of IST…This investment constitutes 32.22% of the equity of IST
The Valuation of IST is the key here…IST had a networth of Rs 89.82 crs at March 31,2010….Add to this the incremental value over Rs 66.11 crs (last 2009 reval) of 330555 sq meters(over 35 million sq ft) land at Khopoli ( my sense is atleast Rs 150 crs ) + Valuation of the 7% stake in Actis Biologics India (Rs 250 crs assuming that recently Actis placed 10% at US $ 80 Million) + Potential worth of the high end R & D work (Rs 500 crs atleast )
This would compute to Rs 89.82 crs + Rs 150 crs + Rs 250 crs + Rs 500 crs => @ Rs 1000 crs …..My conservative sense is that the value is in the range of Rs 750 crs to Rs 1000 crs….ISI is entitled to 32.22 % of this…Therefore Rs 250 crs to Rs 350 crs is the value of ISI’s investments in IST….but being a strategic stake a haircut of 50% is in order…Therefore Rs 125 crs to Rs 175 crs should be the value range…ISI has a capital of Rs 23.88 crs (FV Rs 10)…thus per share value of ISI after haircut will be in the range of Rs 50 to Rs 75
Ghias and Rahejas will have us believe that IST is a loss making below par value…they are simply talking bullshit and have cornered additional shares of atleast 79 lakhs of IST at par in rights issues and that should have been subscribed to by ISI actually .These rights came subsequent to the Scheme of Amalgamation order of July 4,2008…IST has an Equity of Rs 74 crs….The Valuation range of Rs 750 crs to Rs 1000 crs gives the per share value range of Rs 100-Rs 135
For lower IST Valuation of Rs 250 crs and Rs 500 crs the ISI Share Price after haircut will be respectively lower at Rs 17 and Rs 34….so as you see the key is the Valuation of IST…and that is controversial to say the least…and this is where I feel 38000 shareholders of Futura Polyesters who became the 38000 + shareholders of ISI too have been short changed significantly when ISI,seemingly as per Promoters gameplan, rejected subscribing to the IST Rights at Rs 10
Cheers !…or should I say Jeers !
Neither My Family members that includes me too,nor my companies hold any shares in Futura Polyesters or Innovassynth Investmemnts or Innovassynth Technologies……but some of my clients,associates and friends may do so