Sucheta Dalal The Securities and Exchange Board of India’s (SEBI) action in the Vaswani Industries’ IPO (initial public offering) whose listing was halted in May, raises more questions than it answers. This is a company caught in the most brazen episode of stock manipulation. Consider this. A group of intermediaries engineered an 11.3 times over-subscription of the IPO in the high net-worth individuals and 6.8 times in the retail category. There was little interest from institutional investors. Immediately after the issue closed, the bulk of the subscription vanished when over 3,000 ‘investors’ issued stop-payment instructions, leaving just over a one-time subscription of the issue.
Many investors bid for IPOs on the last day after watching the subscription pattern. An over-subscribed IPO requires them to bid for more shares on the expectation of a lower proportionate allotment. In this case, the fraudsters clearly wanted to saddle genuine investors with a higher number of shares. While SEBI halted the listing, its subsequent actions are strange. In its latest order, it has said that allotment will be on the basis of the original over-subscription and the investment banker will arrange to underwrite or bring in new investors.
It is fairly well known among market circles that such brazen manipulation is not possible without the involvement of the company as well as the investment banker. Why would Vaswani Industries choose Ashika Capital, a relatively unknown investment bank, as its sole, book-running lead manager?
SEBI is happy to believe Vaswani Industries’ contention that it is a victim in this case. It makes it a point to mention that “the order, at this stage, will not be construed to cast any adverse imputation to the company in any manner whatsoever.” Interestingly, Vaswani Industries was represented by RS Loona, a former executive director of SEBI, who headed its legal division. SEBI has directed the bourses to list the share, however, trading will remain suspended until Ashika Capital cobbles together a full subscription, in case there is a shortfall, failing which the entire issue proceeds will be refunded.
Dr KM Abraham (whole-time member, SEBI) poses the issue as a dilemma. Should innocent Vaswani Industries be penalised? The 500+ investors pleading for the listing is another strange aspect to this story. The real question is: Why do these investors want the company to be listed instead of simply getting their money back? And then there is Ashika Capital, the investment bank, whose group entity Ashika Stock Broking is directly involved in the manipulation of subscription. More on that below.