Datson’s Lab has no promoter. Was it running a money-laundering operation?
A few weeks ago, an investor wrote to say that the two national exchanges were suspending the shares of Dr Datson's Lab, a little known pharma company, on 22nd May. Our investor said that the company’s promoters had pledged their entire shareholding which was invoked by the lenders leaving it orphaned. Other lenders had moved court and the official liquidator had taken possession of the company and its registered office on 30 April 2015. A month later, the stock exchanges suspended trading in the company, although its shares continued to be manipulated right until 23 April 2015, when they had shot up 183%, to Rs17.
A simple Google search reveals a shocking saga of how companies are listed, subscribed to by ‘foreign investors’ and their stock prices manipulated right under the nose of the capital market regulator and stock exchanges. In fact, Dr Datson’s Labs seems to have been just a large money laundering operation. And, yet, like the dubious Satyam Computers, it won a series of awards for corporate governance, innovation, transformation and leadership all the way until its eventual collapse in 2015.
But, unlike Satyam, even a simple reading of its corporate history suggests complicity of regulators and listing department officials in allowing the company to exist. Dr Datson’s Labs started operations in 2006, incorporated as a private company called Aanjaneya Biotech which later became Aanjenaya Lifecare. It claimed to be making salts of quinine, a second-generation anti-malarial. Aanjaneya Lifecare’s promoters are listed; these are: Aasda Life Care Limited and Dr Kannan K Vishwanath. In 2009, Aanjaneya Lifecare became a wholly-owned subsidiary of Aasda Life Care Limited.
Over time, the company kept issuing shares to the promoters, until Aanjaneya ceased to be a wholly-owned subsidiary. It then decided to make an initial public offering (IPO) in 2010; the issue was managed by Anand Rathi Advisors and IDBI Capital Markets. A series of stunning disclosures in its red-herring prospectus were a declaration of its shady intentions, but it was still listed on the BSE and the NSE.
The risk factors in the prospectus bluntly stated the following: that the object for which funds were being raised had ‘not been appraised by any bank or financial institution’ and their deployment is ‘entirely at our discretion’. No plant or machinery was ordered, and, at the time of going public, it had negative cash flows for the prior four years at least. Several statutory reporting requirements were not complied with and could lead to penalties. Certain statutory licences and approvals may have expired or were pending approval; many trademarks were not registered and remained with its promoter Dr Kannan Vishwanath who also owned the registered office. It had not appointed a company secretary as required by law and had not even applied for permission to manufacture certain products. While it claimed to have acquired the assets of a company called Prophyla Biologicals (Pune), the sale deed was not executed.
More stunning was the admission that it could not even undertake any new activity without the permission of its bankers, viz., State Bank of India and Shamrao Vithal Bank. It also had unsecured loans of Rs10 crore from its directors. This meant that the IPO funds would be used to repay its bankers and directors.
Now let’s look at the equally shady antecedents of Dr Datson’s ‘corporate promoter’ Aasda Lifecare, which was originally Finaventure Capital Ltd. In 2010, its name change failed the listing rules and was disallowed. How and why was it cleared later? And why did Aanjeneya Life Care not come in for greater scrutiny when it was listed in 2010? All this requires a full-fledged investigation. Well-known market expert Ambareesh Baliga says that the name change to Dr Datson’s Labs happened in June 2013 when its share price dropped sharply from over Rs800 to Rs60. It was probably a ruse to ensnare a new set of gullible investors.
Despite this shady background, Anjaneya Lifecare attracted foreign institutional investors (FIIs) such as Davos International Fund, Leman Diversified Fund, Sparrow Asia Diversified Opportunities Fund, Stream Value Fund, Kuvera Fund and Auctor Investments. They held 56.79% of the equity in March 2014; but their shareholding has dwindled to 2.20% in March 2015.
It also issued foreign currency convertible bonds (FCCBs) in October 2014, a small portion of which got converted into equity at Rs14.25 per share in January 2015. The entire shareholding of promoter, Dr Kannnan Vishwanath, was pledged and invoked by lenders leaving the company virtually orphaned. Key directors, including the compliance officer, have also quit. Will the management get away with this and bide their time until they can revive the company and con investors again? A simple reading would suggest that this is nothing but a money-laundering operation, fit to be investigated by the ED (enforcement directorate), income-tax department, SEBI and RBI. Will they?