Insider Trading in Hathway Cable and Den Network before the Reliance deal. Will SEBI Investigate?
On 17th October, Reliance Industries Ltd (RIL) came out with its financial results for the second quarter (Q2) of FY18-19 results. However, more than the numbers, the buzz was created by its announcement of plan to acquire 66% stake in Den Networks and 51.30% stake in Hathway Cable, which will lead to consolidation in wired broadband space just like the telecom space.
 
But what is interesting is some people may have known about this information and acted on it and pocketed huge gains. The price action of these two stocks before the announcement points to a clear-cut case of insider trading.
 
From the end of August, the scrips of Hathway Cable and Den Networks have risen a whopping 57% and 53%, respectively. That too when the Nifty is down 11% and the Small Cap index is down 21%. 
 
There have been no developments on these stocks whatsoever, to warrant such dramatic rise. And how is it that these two completely different stocks rose at the same time in a market hit by bear hammering? The only common element is what came out later, which is RIL buying a controlling stake in both these companies.
 
It is clear that a small group had the inside information of these deals that has led to these stocks rising in so much in a market going through a huge turmoil, where almost all stocks are down.
 
 
Insider trading is rampant in India. This is not the first time, we have pointed out in insider trading in listed companies. However, in almost all cases, the response from market regulator, SEBI, was not up to the mark. In fact, in many cases, entities behind insider trading got away either with miniscule fine or through consent.
 
We wrote about insider trading in Infosys Ltd in 2013 before the return of NR Narayan Murthy at the helm, then in Ranbaxy Lab in 2014 before it was acquired by Sun Pharma and many more. 
 
In case of Infosys, when the BSE Sensex was down 455 points on 31 May 2013, the company scrip was up 3.32%. That too when its peers like Tata Consultancy Services (TCS) and HCL Technologies were flat. Next day, i.e. on 1 June 2013, Infosys announced that its main founder Mr Murthy, who was on a retirement, would be returning to the company as executive chairman of the board and as an additional director for five years.
 
As a matter of perspective, this was the highest percentage decline in the Sensex in 14 months and the highest rise for Infosys in one and half months, both happening on the same day! Clearly, someone knew that Mr Murthy was coming back and that many investors will see this as a positive development. There is a prima facie suspicion of insider trading. (Read: Someone knew Narayana Murthy is coming back and traded on it)  
 
In 2014, Sudhir Valia, executive director of Sun Pharma bet big in the scrips of Ranbaxy Laboratories it was bought for $4 billion by Sun. Over six trading days, prior to the announcement of its acquisition by Sun Pharma, shares of Ranbaxy had rallied 34%.  
 
According to information available on the BSE, Silverstreet Developers, a firm in which Mr Valia was one of the partners, were found buying stake in Ranbaxy since December quarter of 2013. Silverstreet Developers LLP's stake in Ranbaxy was 1.41% as on December 2013 end. The stake increased to 1.64% at the end of March 2014. And days after this, Sun Pharma announced the big takeover. (Read: Was Sun Pharma's Valia betting big on Ranbaxy? & Insider trading in Ranbaxy?)
 
During the same year, there were massive volumes and a hefty price rise in ING Vysya scrip one month before the Kotak Mahindra Bank merger deal. 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! (Read: Insider trading in ING Vysya stock?)
 
In July 2018, Moneylife wrote how directors and promoters of BK Birla group company Kesoram Industries may have allegedly indulged in large-scale insider trading in the process short-changing minority shareholders hundreds of crores.
 
As of 31 March 2015, Kesoram held 27.46 lakh shares of Century Textiles. On 22 March 2016, Kesoram sold all these shares to Camden Industries for Rs141 crore in a bulk deal. In FY17-18, Kesoram invested another Rs400 crore in Cygnet Industries, its wholly owned subsidiary. Cygnet Industries used this amount to buyback 27.46 lakh shares of Century Textiles from Camden Industries in three transactions on 5th, 11th and 12 December 2017; for Rs355 crore. Thus, it is alleged that Camden Industries made a clean profit of Rs214 crore. 
 
Then Cygnet Industries sold these 27.46 lakh shares of Century Textiles to Pilani Investments, a promoter entity of Kesoram, in two transactions on 7th and 14 June 2018, for Rs255 crore and in the process realised an allegedly loss of Rs100 crore. 
 
In this entire round tripping, Camden Industries allegedly made a profit of Rs214 crore but Kesoram shareholders lost Rs100 crore through Cygnet Industries. Also during FY15-16, Kesoram had through a slump sale, sold its spun pipes and chemical business to Camden Industries for Rs400 crore. These businesses were again bought back by Kesoram in FY17-18 for Rs422 crore.
 
Kesoram, however, had denied that Camden Industries is a related party in terms of provisions of the Companies Act 2013 and SEBI Regulations 2015. (Read: Did Directors of Kesoram Industries Indulge in Insider Trading and Short-change Minority Shareholders?)
 
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    RealEstateDealStreet

    10 months ago

    Corruption is not only in politics but in the Indian corporate sector too.

    Stock manipulation: Archit Organosys
    Archit Organosys, which manufactures chemicals, specialty derivatives and adhesives and sealants, claims to be of the leading chemicals companies in India. The surprising part is that, though the company’s website claims that it has maintained a steady growth and has ‘matured itself in capturing a major share in the market’ expanding  to the US, Europe, Middle East across 50 countries, nowhere in its annual report or website is there a mention of clients’ names. 
     
    Archit, which operated as Shri Chlochem Limited earlier, did not submit its shareholding pattern for the June 2011 quarter and did not appoint a whole-time secretary in 2003, according to www.watchoutinvestor.com. Shri Chlochem was suspended by the Bombay Stock Exchange in 2007 for not complying with its listing agreement. The suspension was later revoked. 
     
    The auditors, GK Choksi & Co gave a qualified opinion on the FY16-17 accounts, for non-provision of a liability of Rs1.5 crore that violated Accounting Standard 29 and also resulted in the understatement of current liabilities. 
     
    Sales fell 5% year-on-year (y-o-y), from Rs10.65 crore to Rs10.08 crore in the June 2017, and it made a loss of Rs1.94 crore compared to a profit of Rs0.46 crore. The average sales for the past 10 quarters have been Rs12.4 crore and the average net profit was Rs0.11 crore. Despite such poor results, the stock rose 478%, from Rs8.57 on 17 June '15 to Rs49.5 on 24 November '17. How the stock of a company with no growth and a qualified opinion on its financial statements shoot up so much? The regulators are not interested in finding out.
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    Gurupad S Parsi

    1 year ago

    Congrats to ML team for creating awareness about manipulated company so that investors are protected.Self-help is the best remedy for regulators red signal is normaly late.

    Raj Sharma

    2 years ago

    Feel bad when the respectable magazine covers a story citing a decade old issues. The reporter didn't even bother to look at the recent changes like the ongoing capex,
    management putting 25Cr of it's own capital through rights issue. I think your reporter need to do better job to justify his salary.

    Stock manipulation: Best Steel Logistics

    Best Steel Logistics Limited (BSLL) claims to provide warehousing solutions for steel industry and is also engaged in trading of steel and related products. It controls four warehouses with a total area of 373,000 square feet, located in Bengaluru, Hyderabad, Faridabad and Ghaziabad. While the company says it is also looking to set up additional facilities in Rajasthan, Gujarat and Uttar Pradesh, revenue has been erratic in the past five years, from no revenue in FY12-13 to Rs61 crore for FY16-17; trailing 12-month (TTM) revenue is at Rs210 crore.

    BSLL reported net sales of Rs99.6 crore in September 2017 compared to Rs1.34 crore in September 2016. While the reported profit after tax was Rs2.91 crore for September 2017 compared to Rs0.34 crore in September 2016. Until FY15-16, the net worth of company was also negative with a negative reserve & surplus of Rs0.54 crore. BSLL is growing by borrowing funds; as of FY16-17 borrowing stands at Rs33 crore. The cash flow from operations is negative; this is due to high receivables and low payables, i.e., sales are not being converted to cash. This trend can be seen in its cash flow statement for the past three years. For FY16-17, the increase in debtors was Rs9 crore while decrease in payables was Rs1.8 crore in the cash flow statement. The promoter shareholding has reduced from 39.04% in June 2017 quarter to 38.75% in the September 2017 quarter. Meanwhile, the stock has rocketed—from around Rs9 in November 2015 to over Rs102 now, a rise of 1033%. The regulators? As usual. 

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    COMMENTS

    Nivesh Jain

    10 months ago

    HI SEE NOW APL APOLLO TUBES IS ACQUIRING APOLLO TRICOATS AKA BEST STEEL LOGISTICS ..

    hope now you change your stand on apollo tricoat

    MDT

    11 months ago

    1. APL Apollo has denied having to do anything with this company. It has clearly stated it is the chairman’s son who has teamed up with others in his personal capacity to make an open offer.
    2. Where is the tunaround? Its turnover has shrunk 90% and it made an operating loss in June quarter.
    3. In any case what does any of this got to do with an article we wrote in November 2017 when the stock had shot up without any fundamentals from 2015? What was happening in the company between 2015-17? Nothing. Only manipulation.

    Harshit Solanki

    11 months ago

    Why is moneylife not replying to below comments... or they should agree in open that there thesis is completely false

    sakthi vel

    2 years ago

    Now APL Apollo group has invested here. what is your opinion now? please update.

    Nivesh Jain

    2 years ago

    moneylife should do their research properly , analysis should not be done simply relying on past data future prospects should be done accurately

    Have you visited the company ?
    Atleast you had a concall with management regarding future prospects?

    time will say whether best steel logistics is manipulative story or multibagger story

    shyamdave.d

    2 years ago

    Shocking. What are regulators for? However, investors, stock players and commentators should also report to you SEBI etc.

    PARESH KAMAT

    2 years ago

    It is turnaround story

    asm aircon

    2 years ago

    the company came out with open offer in 2016 the management has changed

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