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A Lion’s eye on the Bulls and Bears

“In India, companies may fall sick, but promoters rarely do!”

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Mukesh Ambani coterie accused by Samajwadi Party for Insider Trading in RPL and Jai Corp

After supporting the Congress in winning the Trust Vote on the Indo Nuclear Deal I was wondering when would Amar Singh of the Samajwadi Party launch his attack on a man he hates,Mukesh Ambani…he bluntly disclosed this in a TV Interview a few months ago

Well,he’s started doing so….he  and his party have moved SEBI to probe the Insider trading in Reliance Petroleum and Jai Corp

A letter by Amar Singh addressed to the Chairman of SEBI,C B Bhave,has demanded a probe into the RPL matter under Sec 11C of the SEBI Act and the SEBI (Prohibition of Insider Trading) Regulations

Amar Singh has provided details of how promoters,insiders and other associates of the Reliance Group became “unjustly” richer by over Rs 1000 crs.He has provided details of how they illegally sold RPL Futures between November 1-6,2007 armed with inside information of the impending part sale of the RPL holding by RIL….they made huge insider profits when RPL price fell sharply

Amar Singh has also demanded an inquiry into ‘‘large scale price manipulation in the shares of Jai Corp Ltd’’ in the last two years.

Singh’s letter dated July 28 also alleged that the manipulation had taken place under the nose of the market regulator SEBI and also the stock exchanges, which exhibited total lack of action by regulatory authorities and complete failure of its surveillance machinery.

Jai Corp is owned by Anand Jain (very close to Mukesh Ambani….regarded by many as Dhirubhai’s third son) and his family.

If you recall last year in a Bulk Deal on October 15,2007 after the Record date of October 12,2007 for Bonus Issue of 1:1 and Split of Shares from Rs 10 to Rs 1 FV,The Jain Family sold 2.19 crore Shares (12.69% of Equity) at Rs 1035 xb/xs and Rs 1036 xb/xs to a host of FIIs and Domestic Funds like Morgan,Merrill Lynch,Goldman Sachs,Citigroup,Barclays and Birla Mutual Fund…It was one of the largest deals of it’s kind of over Rs 2250 crores…Check it out on{55096F22-66E2-4252-AF0D-B661E38EC108}¶m1=1   

Jai Corp is engaged in SEZ Developments in Vashi and Panvel Regions.The Share price currently has dropped to Rs 435 with Promoters now holding 72.54 % of the equity through eighteen shareholders….Ten are of the Jain Family and Eight are Companies

RPL had surged  in 2007  and was made to zoom to near Rs 300 to facilitate the offload of 5% stake held by RIL and then drifted back lower to below Rs 150 after the stake sale…..Jai Corp too was controlled over 85% by the Jain Family before the stake dilution and it’s share price had a meteric rise to over Rs 15000 (FV Rs 10 and cb/cs) in October last year….making crores for those who had inside knowledge of things to come in this Company and who had acquired the shares at a price in the Hundreds. read more

Nirma disallowed to withdraw offer for Shree Rama Multi-tech

Today’s edition of Business Standard carries in a regular column “Without Contempt” an article by Somasekhar Sundaresan….he highlights the dilemma of an Acquirer,one he discloses he has represented,…in that it on one hand it can be accused of violating the Insider Trading Regulations(In non Hostile takeovers),which prohibits communication or counselling of unpublished price-sensitive information and on the other hand can be stuck despite acute fraud (In Hostile situations)

Though Mr Sundaresan has chosen not to disclose which companies he is referring to as probably matter may go in appeal,anyone with a pulse on Indian Stock Markets would know he is alluding to the SAT order of June 5,2008 last month which upheld the SEBI Ruling that the Nirma Group could not withdraw the public announcement to buy out 20% of the shares of Shree Rama Multi-tech

The matter is really interesting…….In 2002, Nirma Group subscribed to 4894 secured optionally fully convertibles notes of Rs One Lakh each with a  nominal value of Rs 1.35 lakh each.These were issued by three group companies of Shree Rama Multi-tech.Furthermore 14288700 equity shares of Shree Rama Multi-tech too were pledged with the Nirma Group on this deal

When in 2005,there was a default on these notes,the Nirma Group chose to invoke the pledge and became owners of 24.25% of the Equity of Shree Rama Multi-tech. In keeping with the Takeover Code Regulations of SEBI they appointed a Merchant Banker who made the Public Announcement to acquire 20% of Equity shares of Shree Rama Multi-tech   and also filed with SEBI the Draft Letter Offer Document.

Then follows a great tale where Nirma tries to wriggle out of the Offerfirst they file for revision of the offer to current market price which had fallen significantly…this being disallowed they file for withdrawal of the offer bases on special circumstances.These circumstances relate to Nirma discovering later that Rs 326.48 crs have been siphoned off by the Promoters of Shree Rama Multi-tech.Nirma was relying on Sec 27 (1) d of the Takeover Code which allowed the withdrawal of the offer under ” such circumstances as in the opinion of the Board merit withdrawal”

SEBI refused to accept that the circumstances were in fact “such” and pointed out that Nirma should have done their due diligence before invoking the pledge and should not have acquired the shares if the circumstances so warranted. read more

Ranbaxy & Daiichi Deal : Minority Shareholders Interests Compromised

Just read Ajit Dayal’s column titled Ranbaxy-Daiichi deal: a case of perverse engineering? in today’s edition of DNA Money

Hey Ajit,couldn’t agree with you more !…but it’s not the first time in India’s Corporate History that Minority Shareholders are being treated like if I may say, Step Shareholders!

There is an even better and horrid precedent…. Years back Sulzer’s foreign parent bought out the co promoter, Goenka’s stake at Rs 2000 a share ! while market prize was only Rs 250 !….as it was a transfer between promoters,SEBI’s SASTA regulations did not require a mandatory offer to existing minority shareholders to buy out atleast 20% of the equity.

Methinks that with all the controversy and uncertainty surrounding Ranbaxy with the US case on sub standard drugs and the agreement with Pfizer to delay marketing “Lipitor”, SEBI should pass a directive that the Open Offer should be for full remaining stake held by Shareholders at Rs 737 (Price being paid by Daiichi to Ranbaxy Promoters for their full stake) and not just a 20% offer which would result in only one of three shareholder shares being accepted at Rs 737…..Ranbaxy would then possibly face delisting as shareholders would rationally tender all shares  which would then have to be accepted and floating stock would stop floating !

This would be fair considering the suspicion that not everyhing is above board

Growing suspicion is that the Promoters of Ranbaxy,CEO and Managing Director,Mr Malvinder Singh and Family,despite recent claims of moving towards becoming India’s Global Pharmaceutical Multinational,did a U-turn and preferred to exit and sold out their full stake to Daiichi at Rs 737 because they were fully aware of the disastrous consequences if the decision in the US case went against Ranbaxy

Today’s Business Standard carries a front page interview with Mr Singh in which he accuses,without naming them,two pharmaceutical companies,one Indian and the other a Multinational,and a coterie of brokers for the rapid fall in the stock price,

Ranbaxy crashed by 10% on Monday and a further 15% on Tuesday to a low of Rs 405 before reviving on Wednesday to close at Rs 470….It closed today at Rs 452

The Financial Express today carries a quote from Mr Mark Pohl,a US based registered patent attorney in which Mr Pohl states that the company is effectively out of business in USA if the FDA finds that the company has submitted falsified,misleading and incomplete documents and debars it.This would mean the company cannot get approval for fresh Abbreviated New Drug Applications (ANDAs) and cannot even maintain existing ones. read more

SRK in the BAG !..but BAG not in the BAG!

Just spotted a news headline that SRK is in the BAG…..It seems Star Actor, Shah Rukh Khan, is planning to tie up with his friends, the promoter couple of the BAG Group to provide TV Content and even possibly produce TV Shows on BAG’s new TV channels.

Hey SRK just check out what your friends, the promoter couple did a year or two ago…they purchased lakhs of shares of their own company on the BSE in the Rs 9 to Rs 11 range and a week later announced that one of the promoters of India Bulls will invest Rs 26 crores in his personal capacity in the equity of the Company by taking up a preferential allotment of Two Crore shares at Rs 13 each…. Promoters also allotted convertible warrants to themselves… I’m sure they had a good reason for doing, possibly to shore up their stake before allowing the preferential allotment … Amusingly and quite ironically, I must add, the Company had to inform the BSE about these open market purchases by promoters under Insider Trading Rules… all of these announcements are there in the public domain on the BSE website… The share price simply started zooming upwards past Rs 50 and beyond.. It ofcourse is now down to Rs 30.

Interestingly when I put this before our young generation…. young  20 to 22 year olds in three premier education institutes in Mumbai, the girls felt this was not ethical while  the boys felt there was nothing wrong but had no answer to what about those poor shareholders who sold at Rs 9 to Rs 11 not knowing about the preferential allotment and wanting just an exit after being trapped at higher prices in this company’s shares in their IPO issue. 

I had earlier advised my clients to invest in BAG Films as I was excited about their foray into Radio Channels through their subsidiary and the Institutional support of IDBI who had acquired an equity stake in the company… However on these announcements I advised  clients to exit, giving them my reasons even though I told them  that the share price would soar… all of them preferred to exit and not one has regretted that the share price actually crossed Rs 80 afterwards!

How all of this missed BSE and SEBI.. I don’t know!

SEBI investigating 3656 cases of Corporate Fraud at Stock Exchanges!

SEBI Whole Time Director Mr T C Nair revealed a startling statistic at an ASSOCHAM Conference on Corporate Fraud held recently in New Delhi

He said that SEBI was investigating 3656 cases of Corporate Fraud at Stock Exchanges.In 2007 SEBI had received 169 corporate fraud complaints,most of which related to Market Manipulation

Let’s rationally take listings on Bombay Stock Exchange as the base.With  just under 8000 securities of just under 5000 companies listed on the Bombay Stock Exchange this would  comfortably mean (even after making some allowance for overlapping) that there is a complaint of corporate fraud on stock exchanges against every second company listed !…Also looking at 2007 it would mean a fresh complaint is received every second working day by SEBI !

Mr Nair also stated that most of the frauds were taking  place by exploiting the skills acquired from information and communication technologies and therefore SEBI was planning to set up a committee of IT experts to develop some mechanism to curb such frauds

Moreover SEBI will shortly issue a directive for mandatory annual audit of all transactions by the Stock Exchange  

With such a workload and such mounting pressures like these I think one should stop using the dubious acronym for SEBI…that is stop saying SEBI stands for “Systematic Elimination of Brokers and Investors” .It may have a good reason for going slow

Think about it ! If the Exchanges were to suspend or delist all suspected Companies for Frauds committed then SEBI would have no listed companies to regulate and shareholders would be stuck with shares of such companies ! ?

Am I serious !? …Well…..?

Mr Nair,what is stopping SEBI from putting up the List and a small complaint brief of the Listed Companies under Investigation on it’s website with a user friendly Search feature?  Is not SEBI’s prime objective that of Investor Awareness and Protection ?

The potential Investor and minority shareholder has a right to all sensitive information about the company….Remember IFSL a few years ago…this company was under SEBI investigation for fradulent and accomodation profits.It had declared spectacular quarterly results stating they came from it’s new Alternative Energy Business when actually they were purely accomodation entries of stock market profits which SEBI knew about.Many top Financial Institutions and Brokerage Houses recommended this Indore Company at Rs 30 and themselves purchased lakhs of shares…a leading FII picked up lakhs of shares even on the day when SEBI issued an order against IFSL after market hours…Why could SEBI not have warned Investors of IFSL when it issued a show cause notice to the Promoters ?…by not doing so SEBI is actually abetting Insider Trading !…IFSL for a long time has been now at Rs 1 or Rs 2 to which it fell like nine pins after the order and Promoters saying they will not appeal…lower circuits for several days and no exit route for those who had purchased the shares ,which I suspect were offloaded by promoters themselves,who got away fairly scotfree while Investors lost a packet. read more

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