The regulator finally woke up to long time misuse of funds by Transgene Biotek and barred its promoters and director from accessing the markets. Moneylife has been highlighting these issues since long
After keeping mum for almost a year, market regulator, Securities and Exchange Board of India (SEBI), has barred Transgene Biotek Ltd’s promoters and directors from accessing the markets.
In an interim ex-parte order SEBI’s Whole Time Member Rajeev Kumar Agarwal, K Koteswara Rao, chairman and managing director of Transgene Biotek, three directors Prashant Kumar Ghosh, Soma Sekhar Marthi and Narayana Murthy Pentyala as well as the company promoters K Nirmala Rao and K Srinivas.
The order also barred Transgene Biotek from issuing any more equity shares, any other instrument convertible into equity shares or any other security till further orders. The order relates to complaints about misuse of funds raised by Transgene Biotek, through the Global Depository Receipts (GDR) route.
Earlier, Moneylife has written about price manipulation in the Transgene Biotek scrip on the stock markets.
A preliminary investigation by SEBI found that out of total GDR funds, raised in two issues, of $40.5 million, $37.42 million were transferred to various entities. The fund raising was purportedly for business expansion purposes, Transgene said that the funds were transferred for transfer of technologies from the other companies to Transgene. SEBI found no evidence that showed any such transfer of technology to warrant the payments.
The order said, “In the facts and circumstances of this case, I prima facie find that the aforesaid facts prima facie indicate that the acts, omissions and concealment of Transgene and its Promoters/Directors were 'fraudulent' as defined in regulation 2(1)(c) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 ( PFUTP Regulations).”
The order will stay in effect and the de-barred top management and directors of the company will not be allowed access to the markets until the SEBI is able to complete a full investigation into the matter.
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In Thursday closing report, we had mentioned that the NSE’s CNX Nifty may resume downtrend and only a close above 8,450 may negate the downward bias. On Friday, although the index opened marginally higher and moved in the negative for a few minutes, when it hit the intra-day low, the Indian benchmark made a sharp up move.
There have been massive volumes and a hefty price rise in ING Vysya scrip over the past one month, before the Kotak Mahindra Bank merger deal. Will SEBI stir itself to enquire? Ironically, this comes at a time when SEBI has just announced new insider trading norms
Kotak Mahindra Bank, India's fifth-biggest lender by market value has just announced its acquisition of ING Vysya Bank. ING Vysya shareholders will get 725 shares of Kotak for every 1,000 they own. This exchange ratio indicates an implied price of Rs790 for each ING Vysya share based on the average closing price of Kotak shares during the one month to 19th November, which is a 16% premium to a like measure of ING Vysya market price. Sadly, somebody knew about this deal at the ING Vysya end. Just see how the stock price of ING Vysya shot up over the past month, despite the announcement of the merger just on Thursday.
If you look at the chart ‘Worth of 1,000 ING Vysya shares’, you would find that at the beginning of October 2014, the 1,000 ING Vysya shares were worth just 586 shares of Kotak Mahindra. This value went up marginally, but soon dropped to 573 shares of Kotak Mahindra for 1,000 shares of ING Vysya. From then on, it started gaining momentum, and reached up to 704 shares of Kotak Mahindra, as per the closing price on 20 November 2014, the date of the announcement. And what was the merger ratio? 725!
What caused this sudden increase? Did the price of Kotak Mahindra scrip fall drastically?
Or did the price of ING Vysya increased substantially during this period?
Over the past year, Kotak Mahindra Bank has more or less matched the sector performance denoted by the CNX Bank Index. On the other hand, ING Vysya Bank, which has a market-cap of one-sixth that of Kotak Mahindra Bank, struggled to gain momentum. As you can see in the below chart-
However, over the past month, while the Bank Nifty gained around 9% and Kotak Mahindra gained 15%, ING Vysya Bank has surprisingly shot up by 29%. Most of these gains came from the beginning of November 2014. ING Vysya shot up by 25% to Rs814 as on 19th November from Rs649 as on 5th November. Over the same period, Kotak Mahindra and the Bank Nifty gained a mere 2%.
Trading volumes in ING Vysya too, shot up drastically. With an average of 17,000 shares traded per day in October 2014, the number of shares traded per day in ING Vysya scrip shot up to 52,821, for November 2014 (up to 19 November 2014). On the other hand, the number of shares traded per day in Kotak Mahindra Bank fell to an average of 46,407 shares from 65,215 shares traded per day in October 2014.
This clearly shows that there was a group of shareholders privy to some kind of insider information which took the stock price of ING Vysya up.
Will the regulator, SEBI, investigate? Or turn a blind eye?
Last year, we had published a similar case of insider trading in Infosys when they announced that NR Narayana Murthy would come back as the executive chairman.
(Read: Someone knew Narayana Murthy is coming back and traded on it) We have not heard of any investigation yet and most likely, we may not see an investigation in this case too.