The Securities and Exchange Board of India (SEBI) has received an explosive new whistle-blower letter that may call into question the merger valuation of ICICI Securities with ICICI Bank, which is already subject to contentious litigation. It is reliably learnt that SEBI is investigating the new allegations which are, apparently, backed by verifiable data.
Essentially, the whistle-blower, who calls himself a market participant, alleges that Bank of America Securities India Ltd (BofA Securities) was involved in ethical violations to help ICICI Bank in securing a ‘fairness opinion’ on the merger valuation of ICICI Securities. Remember, minority shareholders of ICICI Securities have filed a class action suit in this regard, so has Quantum Mutual Fund. Strangely, while retail investors have been fighting the issue, the proxy advisors were quick to endorse the low valuation.
The key charges made in the letter are as follows. BofA Securities’ managing director (MD) and co-head of investment banking received a mandate to provide a fairness opinion just four-five working days before ICICI Bank’s board approved the merger, on 29 June 2024. He signed and issued the opinion on the very same day, even as concerns were apparently raised internally about whether such a short time was sufficient to evaluate financials and approve the swap ratios.
ICICI Bank, allegedly, dictated the payment to BofA Securities for the fairness opinion on behalf of ICICI Securities. The Bank officials controlled things to the extent that it merely ‘rubber-stamped’ the valuation provided by ICICI Bank, says the whistleblower. Interestingly, he has told SEBI that all these allegations can be established by innumerable emails, zoom calls and meetings held between the BofA Securities’ top brass, including those of its India CEO, with ICICI Bank’s team.
Further, while BofA Securities has checks & balances, such as presenting the case to an internal ‘fairness opinion review committee’, this was vitiated in this case. The committee was not informed about the role of ICICI Bank in dictating the opinion. The whistle-blower, who calls himself Satyaprakash R, has written from a Proton Mail ID, but the details and facts provided make his email credible. He has emailed a dozen officers of SEBI on how exactly the regulator can verify his disclosures.
Moneylife wrote to BofA Securities, its global compliance officials and ICICI Bank’s CEO and MD for a response on 29th November, with a follow-up reminder. Their response if any will be added to this article. I understand that a SEBI team is already investigating the issue, even as cases filed by investors continue to be aggressively defended by ICICI Bank.
If SEBI is able to confirm the whistle-blower’s allegation, there is a good chance that the delisting of ICICI Securities could unravel; or, at the very least, the Bank will need to pay a fair price to investors.
What is worse, if proven, this paints a rather sorry picture of how BofA Securities and ICICI Bank appear to have flouted ethical and fiduciary responsibilities to push through the delisting at any cost.
Remember, SEBI has already issued an administrative warning to ICICI Bank on 6 June 2024 over the inappropriate manner its relationship manager tried to persuade investors of ICICI Securities to opt for the merger. Other sources tell me that this was a clandestine, nationwide outreach programme that was code named Project Irongate.
ICICI Securities had also disclosed a settlement with SEBI, paying Rs69.82 lakh to resolve issues related to its merchant banking activities and its due diligence process. So conflict of interest and breach of fiduciary responsibility is already established; but the bank was let off with a warning. Will it happen again?
In a nutshell the whistle-blower says BofA Securities issued a fairness opinion on 29 June 2024, which was the very date on which ICICI Bank’s board approved the mandate.
The actual mandate was received from the Bank and not ICICI Securities. Specifically, Anindya Banerjee, group CFO of ICICI Bank, communicated the mandate to Debashish Purohit, MD and co-head investment banking. He also decided the fees that would be paid. ICICI Securities was asked to sign the engagement letter and the final opinion was addressed to the brokerage company.
The opinion was issued in just four-five working days during which a number of zoom/Webex meetings and in-person meetings were held between Anindya Banerjee and Debashis Purohit and other senior officials, which are logged and registered as permanent records in the information technology (IT) systems of BofA Securities.
The whistle-blower says that, in contrast to the flurry of interactions between the Bank and BofA Securities, there was hardly any discussion with ICICI Securities which actually sought the fairness opinion.
Worse, Mr Purohit asked his team to discuss details of ‘valuation, assumptions and numerical basis’ with leading audit firms/valuers such as PricewaterhouseCoopers(PwC) and Ernst & Young (E&Y); there were also joint calls with others who provided ‘fairness’ opinions. He has named JM Financial and Nova Dhruva (other valuers) as being part of these calls.
According to the whistle-blower, although a number of calls and messages on personal communication devices may have been erased, the data in BofA Securities’ internal systems remains. The good news for aggrieved minority investors is that SEBI is pursuing this investigation seriously and following the leads.
The ramifications of such manipulation would be serious, given that that the class action suit led by Manu Rishi Guptha has already exposed serious concerns about the low valuation of ICICI Securities which has benefited ICICI Bank post-merger and a general lack of transparency in the manner it was granted exemptions (Class Action Lawsuits Make a Beginning after 11 Years, but Significant Reforms Still Needed).
As things stand, the merger is complete even while litigation continues. ICICI Bank had claimed that 83.8% of public institutional shareholders and 32% of non-institutional shareholders voted in favour of ICICI Securities' delisting. But allegations about the fairness opinion opens a new can of worms and, in my view, also calls into question the quick green-lighting of the move (merger and delisting) by the three proxy advisory firms. It would appear that minority investors and rare fund managers, such as Mr Guptha, are doing the job of protecting investor interest.
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Comments
parimalshah1
1 month ago
How can one trust henryzack354? Stupid enough to invest more than a million!
Why does it take a whistle blower to investigate such abnormal behaviors? Do SEBI people have no brains to suspect wrong-doing when share prices are vastly different; and small investors are made loser. It is certainly not Rocket-Science for financially qualified experts manning the SEBI. Or is it that only Babus are controlling SEBI and have no awareness of their fiduciary responsibilities?
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