InGovern Research demands SEBI to direct SP group to give exit to minority shareholders

InGovern Research, a proxy advisory firm on January 9, has asked the Securities Exchange Board of India (SEBI) to direct the Shapoorji Pallonji Group (SPG), the promoters of Sterling and Wilson Solar (SWSL), to provide an exit offer to public minority shareholders at a price as per SEBI (ICDR) Regulations for not fulfilling its IPO objectives.

SWSL, the engineering, procurement and construction (EPC) company promoted by Shapoorji Pallonji group and Daruvala family, was listed on the stock exchanges in August 2019 through an offer for sale of shares by the promoters. The offer for sale of shares resulted in promoters raising Rs. 2,850 crore through the IPO.

The main objective of the IPO was to use the proceeds raised to repay the loans amounting to Rs 2,563 crore to SWSL within 90 days of listing. But within three months since the listing of the company’s shares, a change in plans led to an extension being sought for the repayment of the loans. SWSL received only Rs 1,000 crore as of December 31, 2019, i.e., 133 days after listing.

InGovern Research, in its research report, alleged that the non-fulfilment of obligations by the promoters as per the objects of the offer has resulted in a loss of over 60 percent in investment value for IPO investors as the stock price has fallen from the issue price of Rs. 780 to Rs. 310 as of January 6, 2020, resulting in a loss of Rs 1,700 crore for public minority shareholders.

InGovern also argued that SEBI (ICDR) Regulations, 2018 allow for the dissenting shareholders to be provided an exit offer by the promoters in cases where there is a change in objects of the issue or offer in the IPO prospectus.

“With substantial – over Rs 1,700 crore - erosion of wealth of public minority shareholders, and loss of investor trust for a group that seemed to have a stellar reputation. In order to redeem this reputation, the SP (Shapoorji Pallonji) group should provide an exit option for public minority shareholders. This is a demand from minority shareholders and SEBI should force the promoters to provide and exit option for minority shareholders,” Shriram Subramanian, founder and MD of InGovern Research said.

A response from a spokesperson for the promoters of Shapoorji Pallonji said, "The report contains factually incorrect, misleading and unverified statements. "

"We completely deny any misleading statements being made in the prospectus. Being an OFS the promoters were under no obligation to mention the utilization of proceeds. In fact the promoters made this disclosure in good faith even though it was not required by law. There is thus no legal default as is being sought to be made out."

The response from the spokesperson also stated, "As per the said report, the object of the offer was to enable the promoters to repay loans, however, factually, the objects of the offer was to provide liquidity to the shareholders along with the benefits of listing of the equity shares including but not limited to enhancing visibility, brand image. The utilization of proceeds was an added intent of the promoters and cannot be directly construed to be the object of the offer. The promoters would like to state that this intent is intact and is suitably demonstrated by facilitating repayment of Rs 1000 crore as committed by 31st December, 2019."

"The report also mentions that the share price has fallen solely due to the non-repayment of loan. It is important to note that the Board of Directors while approving the repayment schedule levied additional interest of 100 basis points and there is no financial loss to Sterling and Wilson Solar Limited on account of reschedulement and it is illogical to link the stock price reduction to this aspect. We would like to state that share movements are for a variety of reasons and there is no rationale for this allegation," read the response from the spokesperson.