Unknown Cals Refineries is attracting millions of trades but no scrutiny

Cals Refineries, a penny stock (Rs 0.33), is a ferociously-traded company about which very little is known. However, the very fact that more than 40 million shares are traded in this stock daily (2-week average) even when its market cap is little more than Rs2.6 billion warrants a closer look at what’s going on here. The plot is quite thick — with rumours (and no evidence) that the promoters of Cals (Spice Energy) are the same as Spice Jet and the fact that it is building a 5mtpa refinery at Haldia (nowhere near completion from its own updates).

The BSE website reveals that the 52-week high of this stock is Rs0.89 on 11 September 2009 and its low was Rs0.27 on 24 May 2010. It has a good delivery ratio of 64%. On 17 May 2010, the company put out a notice on the BSE with ‘disclosures required under Clause 41(IV) (e) of the Listing Agreement for the Quarter ended March 31, 2010’. It revealed that it had raised about Rs8 billion in December 2007 through GDRs and has used its money for ‘the project’ — setting up a 5mtpa refinery at Haldia, which it expects to start in the last quarter of FY12.

After that relatively fresh piece of disclosure, it’s quite a shock to see the company’s dismal filing of quarterly and annual numbers. It has not filed quarterly numbers since June 2008 (sales Rs0.27 million and loss at Rs0.22 million, the same numbers for FY09, no disclosures since then). After the dismally dated financial filings, the relatively updated shareholding pattern (March 2010) reveals that the promoter group holds less than a percent. However, FIIs hold 6% (P-notes, Mauritius, Goldman Sachs, Merrill Lynch, Taib Securities). “Shares Underlying Outstanding DRs as % of Total No. of Shares is 55%.”

Internet message boards and forums around this company are very active (a true understatement) and range from outright attempts to lure more investors into this share to half-hearted attempts to console shareholders who have bought at higher prices possibly by trapped shareholders themselves. Most hopes are centred around the promoter company coming out with some fantastic announcement that is going to save all the trapped investors and make the speculators rich.

Now comes the most interesting part. The promoter company, which is called Spice Energy Group, has a logo that looks suspiciously like the Spice Jet logo, leading a lot of people to believe that it is the same group — the message boards of course actively contribute to this belief. I have found no evidence to indicate this is so. While the SpiceJet logo has dots, the Spice Energy logo has swishy lines — although the colours are startlingly similar. A deliberate attempt at association? Possibly.

SpiceJet was promoted by Ajay Singh and the Kansagra family. There is nothing linking these promoter to Cals except, again, ubiquitous comments on message boards, and some random documents floating around on the net saying that Bhupendra Kansagra was on the board of Cals (again, although possible, I have found no evidence).

There is a Hindu Business Line article dated 30 January 2010 in which DS Sunderajan, CFO of Spice Energy, claimed that the promoters of Spice — Sanjiv Malhotra, Ravi Chilukuri (CEO) and Gagan Rastogi and their families — actually controlled as much as 75% of the paid-up equity capital in Cals by subscribing to the GDRs. The article says that Cals was trying to get $250 million in foreign funding and an equal amount of domestic funds to achieve the financial closure of its proposed $1.1-billion refinery project at Haldia before March. In the article, Mr Sunderajan said that BNP was trying to tie up foreign funding for them while SBI Caps was looking at the domestic side. Some websites say that Sanjiv Malhotra is a former co-promoter of SpiceJet, but then again, no credible source.

There has been lots of regulatory action around this stock, although never directly on the company. The latest one, 1st July, was that Dr KM Abraham, whole-time member, the Securities and Exchange Board of India (SEBI) passed an order confirming the order against Chimming Trading Company Limited in the matter of alleged manipulative trading by certain connected entities in the scrips of Cals Refineries Limited and others. In June 2009, SEBI had barred 26 entities from dealing in the capital markets for acting as conduits for Ketan Parekh and executing synchronised deals in five scrips over a period of 26 months from January 2007 to February 2009 — one of the scrips in which the deals were done was Cals Refineries.

After all that cyber-snooping, I think it is safe to assume that there is something truly fishy about this company and all the trading that seems to be happening around its stock. I have not found a single piece of evidence suggesting that the fortunes of this company are going to turn around or found any evidence that it is anywhere near completing this refinery project. Investors, if you are smart, stay away.