Suspected dummy IPO subscriptions under Sebi probe

21 May 2011

After receiving complaints against Vaswani Indutries to manipulate regulation while listinf for an initial public offering (IPO), The Securities and Exchange Board of India (Sebi) has grown out to be more vigilant while permitting listing permission to the companies. Sebi also has fear that maximum of the companies are dummy and have register themselves on behalf of big companies.

Sebi has already put halt to the listing of Vasvani Industries and have asked the stock exchange to withhold till further instruction. The company that had planned to raise Rs 50 crore through IPO offered 10 million shares at a price band of Rs 45-49. The price was fixes at Rs 49 by the book running lead manager Ashika Capital. Investigating about the issue, around 3,000 retail applicants were made to withdraw their application, while several others were disqualified because of stop-payment cheques. Among the applicant who withdrew their application was Galaxy Surfactants who withdrew application because of poor investor response. The company had a plan of mobilizing about RS 200 crore at the price band of Rs 325-340. Vaswani industries, after the withdrawal of lists by many companies, assigned 75 per cent of the shares bid by the retail investors at 25 per cent when the bidding was closed.

Supporting the Sebi’s fear, the experts have big companies are still using dummy retail investors in order to create an artificial demand for small IPOs. Gujarat-based operators ‘Barter’ and ‘Rangeela’ and Mumbai's ‘NS’ are example of such companies who are suspected for IPO manipulation by striking a pre-IPO del with the promoters and creating a large number of dummies. They are thus currently under the Sebi scan. However, in case of small IPO, the situation gets reversed where the institution stays away, while the only few retail and high net worth investor put the subscription.

Shilpy Cable down 68 per cent from its issue price, Servalakshmi Paper down 50 per cent, Innoventive Industries down 28 per cent, Paramount Print down 27.4 per cent, Future Ventures down 18.5 per cent and Muthoot Finance is down 11 per cent from the IPO price, as per the IPO listed for current financial year. However, Among last year’s IPOs, Gyscoal Alloys, Sea TV Networks, Tirupati Inks, Aster Silicate, Cantabil Retail, Commercial Engineers & Body, Tarapur Transformers, Microsec Financial, BS Transcomm and Midfield Industries are among the top losers in percentage terms