The Securities and Exchange Board of India (SEBI) has taken cognisance of the misleading promotion of Ruchi Soya’s follow-on public offer (FPO) by asking lead managers to initiate corrective action and give investors an opportunity to withdraw.
Essentially, Ruchi Soya, after its acquisition by yoga guru Baba Ramdev had almost no floating stock (about 1%), which has led to its shares trading at a high of over Rs1,500 right amidst the pandemic in June 2020, a rise from Rs17 in January that year. Investors are being misled into believing that at a price band of Rs615-Rs650 the shares are available at a 30% discount when, in fact, the high increase in floating stock is likely to lead to a significant correction in the stock price.
On 28th March, the day issue was supposed to close, SEBI had a meeting with book running lead managers of the FPO of Ruchi Soya–SBI Capital Markets, Axis Capital Ltd and ICICI Securities Ltd—regarding the circulation of unsolicited messages advertising the issue. An order issued by assistant general manager Abhishek Ranjan says the content of these messages were, prima facie, misleading/fraudulent and not in consonance with SEBI (ICDR) regulations, but does not mention any specific messages.
SEBI has ordered corrective action in the form of an advertisement in the newspapers cautioning investors on the circulation of unsolicited SMS messages. All investors/bidders (except anchor investors) shall be given the option to withdraw their bids. The withdrawal window is for three days starting today, 28th March to 30th March (both days inclusive). The procedure for withdrawal will be part of the advertisement, it says.
SEBI has also asked the lead managers to inform stock exchanges immediately and also send an SMS to all applicants who have submitted bids informing them about the option to withdraw. Stock exchanges and depositors have been asked to make arrangements for the withdrawal.
Here is an example of the kind of messages that have been going around.
Interestingly, the Congress party in a press conference held on 27th March had mentioned the controversial process in which Ruchi Soya’s acquisition has happened under the bankruptcy law, allowing the yoga guru to acquire the company virtually free.
Baba Ramdev’s firm Patanjali Ayurved was funded to the tune of Rs3,250 crore by banks in his bid to acquire Ruchi Soya at Rs4,350 crore. The market-capitalisation of the company is over Rs24,000 crore now. The FPO is being made at a discount to the current price of around Rs800 when the floating stock is virtually non-existent to allow the company to raise Rs4,300 crore which is the exact amount paid for its acquisition. This will be used to repay the bank loans, virtually giving the company free to Patanjali Ayurved.