Action of promoter and key investor leaves unanswered questions
A2Z had tapped the capital markets with its IPO which was to raise Rs 675 crs from a fresh issue and an offer for sale for 45,56,193 equity shares. The combined issue size at the lower end of the price band of Rs 400 where it was finally priced was for 2,14,31,193 shares. Anchor investors were allotted 31,37,940 shares at the lower end of the price band of Rs 400. The issue received bids for 1,76,15,400 equity shares which means the issue less the anchor portion was subscribed 97%. This figure reduced further and at the time of allotment the same was just about 91.31%.
The final allocation that was then done was that the company issued fresh equity of Rs 675 crs at Rs 400 per share or 1,68,75,000 equity shares and the offer for sale by selling shareholders was reduced to 26,94,390 equity shares against the original offer of 45,56,193 equity shares.
The issue was under the SEBI guidelines where the post issue public shareholding would be 25% and accordingly the original equity of 5.73,01,125 equity shares would post the offer increase to 7,41,77,694 equity shares with the public shareholding being 21431193 equity shares or 28.89%. After the allotment the public shareholding is 26.38%. So far so good and there is no issue whatsoever.
On listing day the promoter of the company Mr Amit Mittal bought 18.75 lac shares and Mr Rakesh Jhujhunwala who is a private equity investor in the company before the IPO bought 16.875 lac shares in his individual capacity and persons acting in concert. Their total purchase is for 35.625 lac shares or 4.8% of the post IPO equity. The public holding of a company which listed on the 23rd of December 2010 and went public under guidelines that the public shareholding would be 25% or more has violated this norm on the very first day of it being listed.
Secondly the shares of the promoter, promoter group and all other shareholders are also locked in for a period of one year from the date of listing. What seems little odd and certainly defeats the purpose of the lock-in is this purchase being made by selling shareholders on day one. Technically these shares are not under lock-in and allows them to play the market, something which the law or SEBI did not intend to when they drafted the regulations.
The point being made above is that the 25% public holding limit has been violated with impunity by the promoter and the significant shareholder on day one itself. If corrective action is not taken immediately this could become a new ploy going forward used by market participants or promoters to swing the share prices.
The takeover code becomes effective if a non-promoter or non-promoter group acquires 15% or more shares in a listed entity. Mr Jhunjhunwala is holding more than this prior to the share listing and therefore that shareholding becomes exempt from the same threshold limit. By making this purchase of 16.875 lac shares which is 2.27% of the post IPO equity should normally trigger the code. Maybe the law has different interpretations but the spirit of the law has been completely vitiated by these two instances.
The third issue is of corporate governance. The above instances are poor examples of corporate governance. Mr Mittal has offered through the IPO 12.5 lakh shares for sale. On the very first day of listing he buys more than what was sold. Is this a show of bravado on the price falling? Is this a message being given to investors asking them to buy as he is buying? Is this something more than that? Not sure but it sure does not send the right message and is worrying in the current context of the market place. One hopes that the management does make it clear what is it that they are wanting to do and what is it that they want people to call this action.
One simple question that I would like to ask the buying shareholders is whether there action would have remained the same in case the share traded at say a price of Rs 450 or thereabouts or higher?
At the end of the week the mystery deepens and would remain a mystery until the promoter or players involved in this drama explain. I believe an explanation in in the fitness of things.
