ICICI Securities Does Vedanta’s Bidding; Then 'Clarifies'
In its institutional research report on Vedanta released on 5th October, ICICI Securities (ISec) had mentioned that the book value of Rs89.3/share was “approved by SEBI.”
 
This shocked the financial community because the Securities and Exchange Board of India (SEBI) has no role in valuation and as a policy SEBI neither approves floor price nor the book value, nor any other price. ISec’s comment was seen as directly helping Vedanta in its highly controversial delisting process. 
 
 
When this extraordinary statement (which tries to convey to investors that book value is SEBI approved to give credibility to the valuation), started circulating, ISec issued a clarification saying: “The Institutional Research Team of ICICI Securities had issued Research Report on the Q1 results of Vedanta Ltd on October 5, 2020. In this report it was inadvertently mentioned that - Vedanta has highlighted the SEBI approved book value (ex the revaluation reserves) of Rs 89.3 /share. The same should be read as - Vedanta has highlighted that the FY20 book value is Rs 89.3 /share. SEBI, as a matter of policy, neither approves nor disapproves any Book Value or Delisting Price.” 
 
The reverse book building (RBB) process of Vedanta is currently on and will end on 9th October. Vedanta has been trying every trick to reduce and depress the delisting price. We have covered this here and here.
 
More questions are now being raised on this so-called inadvertent slip up. Has ICICI Securities ever released any research report in the past asking investors to ‘REDUCE’, when delisting is open? Since when has their valuation parameter become book value multiple alone to the exclusion of EPS (earnings per share), etc, and that too a multiple of book value that is under question?
 
Meanwhile, HDFC Securities too has joined the game of doing Vedanta’s bidding. A twitter user pointed out that the bid word is missing along with the price caption. The floor price is shown as default in bid price and the bid price is at left bottom while quantity is shown at top right. It appears as if HDFC Securities intentionally wants inexperienced, occasional users to make mistakes. 
 
 
All these tricks are designed to help the company achieve its desired goal of delisting at a cheap price. Behaviour of institutional shareholders will be also be under watch—whether they protect the interests of unit-holders or not. 
 
ISec and HDFC Securities are investment bankers (IB) and IBs globally are known to suck up to large corporates because investment banking fees are extremely lucrative. Therefore, IBs are rarely, if ever, known to issue research reports that would upset their current or potential clients. We have asked four questions to ISec on this episode. If and when we get their response, we will update our story. 
 
ICICI Securities has replied to us with this response "The original report had erroneously mentioned SEBI in reference to the Book Value which was corrected subsequently. We have also made a public disclosure about this oversight. There is no ongoing or any prior Investment Banking relationship with the Vedanta Group stretching back for the last 3-4 years."
 
Update: After Moneylife published this article on 7th October, SEBI took objection to the erroneous research report released by ISec and directed ISec to issue a public notice with a clarification and make an amendment to the report.The market regulator also plans to launch a probe over the timing of the report and the wrong attribution.
 
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    COMMENTS

    Newme

    3 weeks ago

    On the bidding page, I see around 46000 shared are being offered at floor price. So good job of ICICI.
    Related question, bunch of shares are being offered at less than market price but more than floor price. Why not sell it in open market.

    benny.jose

    3 weeks ago

    I called up the ICICIDirect customer care to place a bid. I was told to place my bid at 87.25 or the system would reject my bid. How convenient.

    REPLY

    ajayaprasad

    In Reply to benny.jose 3 weeks ago

    You can place the bid online at any price. The system doesn't reject the bid.

    Rupesh Chatterjee

    3 weeks ago

    Wish some organizations had learned their lesson and made efforts to clean up their dirty acts after the loans to friends for kickback scandal.

    When you have such mean and cunning directors or promoters on the board of listed companies the shareholders will never benefit.

    REPLY

    shetyerb

    In Reply to Rupesh Chatterjee 3 weeks ago

    Please see under the table. Of these so called reputed FIs, on whose advice the investors depend.

    cjninan

    3 weeks ago

    On a final note on Vedanta, I need to acknowledge and thank money life - the only - THE ONLY media who had the guts to call out on Anil Agarwal. None of the media channel did anything at all except for Zee Business in few episodes.

    Thank You Money Life - I hope you will scrutinise HDFC and other Indian Mutual fund houses who hold large chunk of shares of Vedanta and will question them at what price they have tendered.

    Anil Agarwal being a corrupt person would have already influenced the decision makers of these institutions. They should be aware that MONEY LIFE are looking at them.

    cjninan

    3 weeks ago

    Among banks having brokerage, ICICI direct is the worst brokerage house. As an NRI I asked the RM as to how to transfer the shares from NRO pins to NRO non pins. He was not even aware of the procedure or played dumb.

    Thank you money life for bringing this up. ICICI recommended a price of 120 when the market price was 137. I really do not understand what and how they come to this.

    I think HDFC, LIC should be scrutinized as to how much they have bid as they hold large chunk of shares. Anil Aggarwal would have done the buttering up with these investors. I hope these two institution will keep investors interest in mind while tendering and not suck up to Anil Agarwal like ICiCI has done.

    There is no accountability, I am so glad FT is now being held accountable after forensic audit.

    REPLY

    benny.jose

    In Reply to cjninan 3 weeks ago

    You should call up the customer care hotline. They can place an bid for you at your bid price from the pins account. I was informed by icicidirect that cannot transfer shares from pins to non pins. Only bonus and ipo shares in non pins account.

    Newme

    3 weeks ago

    In ET and MC forums there are many retail customers complaints that ICICI Securities Relationship managers are calling them up and asking them to sell at 125Rs as the floor price is 87Rs and they are better off selling in open market.

    s5rwav

    3 weeks ago

    Both the ICICI Securities and HDFC Securities seem to be Part of the Financial Frauds and Police Commissioner of Mumbai should File FIR against the Board of Directors of Both these Companies for Cheating and Criminal Conspiracy. I am Babubhai Vaghela from Ahmedabad. Thanks.

    makhaik

    3 weeks ago

    MoneyLife is out on top of this delisting issue as the Promoters are playing games to buy up cheap.

    Investment bankers ISec - HDFC Securities siding for pocketing high banking feeds are risking their reputations in the game

    REPLY

    drbheda

    In Reply to makhaik 3 weeks ago

    Few mutual funds including ICICI and HDFC had put in bids at 150-180 fortunately LIC saved the day for retail investors.

    drbheda

    In Reply to makhaik 3 weeks ago

    Nowadays no one cares about reputation, its only moolah they are after. The promoters are the worst in india and have cheated time and again but people do invest in their companies.

    How Vedanta Has Short-changed Its Shareholders by Getting Dividend from HZL but Not Passing It On
    Independent corporate governance research and proxy advisory firm Stakeholders Empowerment Services (SES) has released a detailed note which explains how Hindustan Zinc Ltd (HZL) has not paid dividend to Vedanta shareholders in violation of its own dividend distribution policies (DDP). 
     
    In May 2020, HZL announced a dividend of Rs16.50 per share aggregating to Rs6,972 crore for FY19-20. Mumbai-based Vedanta Ltd is a 64.92% shareholder in HZL and, hence, received bulk of the sum amounting to Rs4,526 crore. This amounts to Rs12.18 for every share of Vedanta. 
     
    However, Vedanta has made an inexplicable departure from the past and is yet to distribute it to shareholders of Vedanta, in accordance with its DDP. In its annual report, Vedanta has quoted “the need for financial flexibility at the group” as the reason for holding back the dividend. Vedanta Ltd has, for the first time in at least five financial years, not passed on the ‘normal’ dividend to its shareholders which it received from HZL. 
     
     
    As per the DDP of Vedanta, all dividend (other than special) received from HZL shall be passed on to Vedanta shareholders in entirety.
     
    The SES note contends “Vedanta should have ideally declared dividend upon receipt of dividend from HZL (as it is a ‘Normal Dividend’, and not a ‘Special Dividend’.”
     
    As per Rule 43A(1) of Securities and Exchange Board of India  (SEBI)‘s (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), all the top-500 listed entities based on market capitalisation are required to formulate a dividend distribution policy which needs to be disclosed in their annual reports/website.  In case the listed entity proposes to change the dividend distribution policy, it needs to disclose such changes along with its rationale in its annual report/website.
     
    DDP of Vedanta:
     
     
    The DDP of Vedanta thus makes it clear that Vedanta board does not have any discretion in not paying ‘normal’ dividend it receives from HZL. 
     
    Vedanta in its latest annual report has provided the following reason for not declaring final dividend for FY19-20 (i.e., after receipt of dividend from HZL for FY19-20): “Given the current market dislocation and uncertainties caused by the coronavirus pandemic, it is important to maximise financial flexibility across the group. Your board will decide on the size and timing of any future dividend payments once there is greater clarity on the outlook for the economy and commodity markets. Your Company believes this is the correct decision for all the stakeholders as we navigate through an unprecedented period of volatility for the global economy and our business. The Directors do not recommend final dividend for the financial year ended 31 March 2020.”
     
    Dividend Distribution History of Vedanta
     
     
    The note further observes that Vedanta has a settled practice of passing normal dividend received from HZL almost immediately to its shareholders. 
     
    Corporate governance experts had earlier pointed out that by holding back the dividend to Vedanta’s shareholders, despite having a DDP, could indirectly lead to a reduction in the company’s delisting price. They had also hinted that if the dividend was not paid now, then it would never happen if the delisting goes through.
     
    This is, indeed, baffling when there is an ex-SEBI chairman (UK Sinha) sitting as an independent director on the board of Vedanta Ltd.
     
    The SES note has asked some hard-hitting questions: “Can the Vedanta board decide dividend payout across the group when the financial position of the companies differs and also its shareholders are different across group entities? Given that voluntary delisting is pending, the board helped the promoter to effectively reduce delisting price by the amount of HZL dividend not paid and indirectly adding an additional Rs 2,250 crore to promoters’ kitty.” 
     
    SES has asked “Was the dividend by HZL paid only to shore up cash in Vedanta?” SES said assuming that Vedanta gets delisted this year, the entire dividend of Rs4,500 crore will be taken by the promoters, when approximately Rs2,250 crore was to be passed on to the public shareholders of Vedanta.
     
    As per a SEBI circular dated 22 January 2020, 
     
    "The recognized stock exchanges shall take action for non-compliance with the provisions of the Listing Regulations & circulars/guidelines issued thereunder, by a listed entity as under: 
     
    Regulation 43A: Non-disclosure of Dividend Distribution Policy in the Annual Report and on the websites of the entity. 
    Fine payable and/or other action to be taken for non-compliance in respect of listed entity: Rs25,000 per instance 
     
    While the SEBI has specified penalties for non-disclosure of DDP, there is however no such action specified in Regulation 43A or aforesaid Circular, in case where dividend declared / paid or not, is as per the disclosed DDP of a Company.
     
    Delving into whether the DDP is a promise to the shareholders, the note adds “Corporate structure, with diversified ownership, does not create a one to one contract between shareholders and company. Yet management and operations and governance of all companies is based on various laws, which can be said to reflect some sort of deemed contract between shareholders and company. In opinion of SES, DDP constitutes or implies a promise to shareholders. The SEBI LODR uses the phrase “the circumstances under which the shareholders of the listed entities may or may not expect dividend”. Therefore, DDP creates an expectation and an indirect promise to pay to shareholders.
     
    SES has opined that if any Company does not abide by its DDP, it is in breach of a promise and the doctrine of promissory estoppel applies. The note suggests that SEBI must consider amending its laws relating to DDP to make DDP more objective. 
     
    SES has added its opinion that “Action of the Company viz. Vedanta, is not in the interest of shareholders of Vedanta, SEBI can suo motu act in the larger interest of shareholders and ensure that shareholders are paid dividend of Rs12.18/ share as soon as possible by Vedanta.”
     
    Recently, HZL issued non-convertible debentures (NCDs) and raised Rs3,250 crore. There is no sign of any sudden slump in the business of HZL. SES is of the opinion that the shareholders must seek answers from the company regarding the sudden issuance of NCDs.
     
    The SES note probed "HZL being a cash surplus company which pays hefty dividends to its shareholders, SES is unable to understand that why suddenly such significant amount of money is being raised through borrowings.”
     
    In fact, only in May 2020, HZL had paid an interim dividend to its shareholders amounting to close to Rs7,000 crore. The SES note says "Therefore, SES is unable to comprehend that if the Company did require funds, then why did it declare Rs7,000 crore of dividend in May. Either it is a case of absolute absurdity in financial management or is there a plan which shareholders are unaware?”
     
    Yesterday, we had written an article to sum up SES’s detailed research report about the fair price for Vedanta’s delisting.
     
    Bidding for the reverse book building (RBB) process kick-started yesterday and will continue till 9th October. 
     
    The bidding details can be viewed at this link.
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    COMMENTS

    mohnotg1

    3 weeks ago

    The way investment in Anglo American was funded itself indicated that the promoters clearly disregarded minority shareholders. That raised serious red flags.

    komalhema4

    3 weeks ago

    Unscrupulous businessmen , instead of manufacturing and making profits do shortcut methods of making money by putting hands to pull money from shareholders' pockets nothing short of pickpocketing.
    Years ago a well known steel company issud IPO at 70 Rs ,company showed losses -may be fraud accounting.The share price went down to Rs 32 and they delisted and compulsorily bought back all shares at this price,causing huge losses to many shareholders.

    rihanahmad

    3 weeks ago

    It is payday time for Mr Agarwal ...time to call in the favours(contributions) that he has paid to BJP party for many many years . and surely they are obliging . Govt nominee in BOD of Hindustan Zinc , and still he acquieses to BOD resolution that company needs to raise money , when hind zinc is already so cash rich and additional fund raising cannot be justified . The govt is very obliging . Can u not see ? pity the blind . Further , messages will go to institutional shareholders to tender their Vedanta shares at lower price than their worth , just to help the promoter delist . It is all for the party - let the tax payers get screwed . This is a banana republic bro . Jai Hind .

    REPLY

    bhaskar.jain

    In Reply to rihanahmad 3 weeks ago

    If its banana republic, why don't you move somewhere else?

    kpushkar

    3 weeks ago

    Sebi remains incompetent body , white eleohant with no
    accountability..
    Uk sinha seems another rubber stamp . What can we expect from sarkari babu living on crumbs

    komalhema4

    3 weeks ago

    They have been cheating shareholders in the past also.Some companies do unfair trade practices through all loopholes in companies act,without any moral principles or consciousness. Hook or crook make money.Hoodlums tie a kerchief around the neck.Corporate hoodlums wear a cloth a little long cloth called tie.Surprisingly SBI does not put an end to such malpractices,

    Newme

    3 weeks ago

    Delisting of Vedanta on its low price point is another cheap tactics by Agarwal.

    Newme

    3 weeks ago

    As usual SEBI and Company Affairs Ministry is found wanting in discharging their roles.

    Nifty, Sensex on a strong uptrend – Tuesday closing report
    We had mentioned in previous week’s closing report that Nifty, Sensex may dip a little. On Tuesday, the major indices rallied and posted major gains. On the NSE, there were 1,104 advances, 780 declines and 117 unchanged.
     
    The trends of the major indices in the course of Tuesday’s trading are given in the table below:
     
     
    Majesco board of directors will meet on October 8, 2020, to consider proposal for buyback of fully paid-up equity shares of the company.
     
    JSPL reported a record 30% growth in its consolidated steel sales at 2.41 million tons in Q2FY21 as compared to 1.85 million tons in Q2 FY 20. It also reported 18% year-on-year growth in consolidated steel production with 2.35 million tons in Q2FY21 as compared to 1.99 million tons in Q2FY20. 
     
    Adani Ports announced the completion of the acquisition of the Krishnapatnam Port Company (KPCL) for an enterprise value of Rs 12,000 crore. APSEZ now has a controlling stake of 75% in KPCL, a multi-cargo port in southern Andhra Pradesh. 
     
    Lupin received approval for its Dimethyl Fumarate Delayed-Release Capsules, 120 mg and 240 mg, from the United States Food and Drug Administration (U.S. FDA).
     
    Infibeam Avenues has entered into a definitive agreement with Jio Platforms and its affiliates, to license, customise, maintain and access its enterprise e-commerce software and payments platform for their business use.
     
    Toll Logistics has chosen Ramco Logistics ERP to transform the complete supply chain operations of its Chemicals business division in Australia and New Zealand. In addition, Ramco Logistics will also be rolled out as a unified out-of-the-box ERP across its new businesses in Asia.
     
    IndusInd Bank’s deposit in July-September quarter grew at 10% compared to same period last year and 8% compared to previous quarter. Advances registered a 2% YoY growth and 1% sequential growth in September quarter.
     
    Som Distilleries & Breweries have passed resolution approving sub-division of equity share of face value of Rs.10/- each sub-divided into 2 shares having a face value of Rs.5/- each.
     
    NHPC has announced that the complete shutdown of Sewa-II Power Station (120 MW) in UT of Jammu & Kashmir w.e.f. 25.09.2020 to 31.03.2021, will result in anticipated financial loss of Rs 84.41 Crores.
     
    The top gainers and top losers of the major indices are given in the table below:
     
     
    The closing values of the major Asian indices are given in the table below:
     
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