BS REPORTER Mumbai, 21 September THE Securities and Exchange Board of India (Sebi) has banned seven companies from raising fresh capital, after investigations revealed they manipulated share prices after issuing global depository receipts (GDRs). The regulator has also barred 10 entities, including a foreign institutional investor (FII) and sub-accounts, from dealing in securities market.
The firms barred from issuing equity shares or any other instrument convertible into equities are Asahi Infrastructure & Projects, IKF Technologies, Avon Corporation, K Sera Sera, CAT Technologies, Maars Software International and Cals Refineries. All of them made at least one GDR issue during 200709.
According to a44-page order issued by wholetime member Prashant Saran, asimilar method was used by all these entities. The companies made a GDR issue that was subscribed even if the pricing was at a premium. Thereafter, within ashort period of time, a set of common investors converted their GDRs into normal shares, again sold to a constant group of clients.
The order says: “The various aspects of GDR issues, like the large size of the issue vis-àvis existing size of the issuing company, unimpressive financials of the company, common initial investors, high proportion of cancellation of GDRs repeatedly by a set of FII/sub-accounts, sale in Indian exchanges, most of which are with a constant group of clients, and further off-loading by them, point towards an elaborate scheme to manipulate markets.” The findings reveal evidence of a pre-arrangement between parties to transactions at various stages of this complex scheme, it adds. The financial instruments regulator has asked the Enforcement Directorate to further look into the matter. Both the depositories — NSDL and CDSL — have been directed to freeze the beneficial owner accounts of all persons/entities named in the order.
Some of the entities that form part of the common pool of investors indulging in this practice are European American Investment Bank Ag (FII), India Focus Cardinal Fund (sub-account), MAVI Investment (sub-account), KII Limited (sub-account) and Sophia Growth-A share Class of Somerset India Fund (sub-account).
Other entities that have been barred are Basmati Securities Pvt Ltd, Oudh Finance & Investment Private Ltd, Alka India Ltd, SV Enterprises and JMP Securities Pvt Ltd (in capacity of a client to other intermediary or in proprietary account).
According to the regulator, the beneficiaries of this manipulation are the GDR issuing companies that end up with a surge in net worth along with the lead manager who earns commissions for providing services and the sub-accounts that purchase GDRs at discounts in an illiquid foreign market and exit in the domestic market with the active connivance of related counterparties that generate volume and depth to attract domestic investors.
The regulator has also barred (with immediate effect) Pan Asia Advisors Ltd and Arun Panchariya (Investment