IHC’s $1-bn acquisition of Sammaan Capital in focus following SC directives: Experts

Shares of Sammaan Capital closed 13.3% lower on Wednesday.

The $1-billion acquisition of Sammaan Capital by Abu Dhabi’s International Holding Co. (IHC) has come under renewed scrutiny after the Supreme Court asked the Enforcement Directorate to clarify its stand on alleged money laundering issues raised by the Central Bureau of Investigation (CBI) and to disclose what steps it has taken on a request for an FIR, securities markets experts said.

Sammaan filed for Securities and Exchange Board of India (Sebi) approval under the takeover code on October 2 and is awaiting clearance. The regulator sought clarifications from the deal's bankers regarding the deal on November 11, the regulator's website showed.

In response to a Public Interest Litigation (PIL) filed against Sammaan Capital, the Supreme Court on Wednesday ordered the Central Bureau of Investigation (CBI) and Sebi to probe the allegations of irregularities. It also criticised CBI and Sebi for adopting “cool attitude” and “double standards”, according to various media reports. The next hearing of the case will be on December 17.

Shares of Sammaan Capital fell 13.3% to close at Rs 158.4 apiece on Wednesday, data showed.

“Today’s developments have no bearing on the transaction with IHC. Both IHC and Sammaan Capital are focused on obtaining the requisite permissions for speedy consummation of the transaction, which will make IHC the promoter of SCL.” Said Sammaan Capital in a press release issued on Wednesday. “The thrust of the case now is solely against the erstwhile promoter, and quid pro quo, if any, between the five borrower groups and the erstwhile promoter in the matter of loans granted to them when Mr. Gehlaut was the promoter and Executive Chairman of the Company.”

In response to the Supreme Court comments, Mukul Rohatgi, advocate for Sammaan Capital, said regulators had previously given them a clean chit on these allegations.

“Sammaan Capital is a publicly listed company with no defaults, no outstanding dues, and no investigations or proceedings pending before any regulatory or enforcement agency, including SEBI, RBI, MCA, or the CBI. The present petition before the Supreme Court does not contain any allegation against Sammaan Capital. The Court has referred to concerns raised about the previous promoter, Mr. Sameer Gehlot, who has no shareholding or involvement in the company today. The Court has clarified in its order that it has made no observations on the merits of these allegations and has merely permitted the authorities to re-examine the matter,” said Rohatgi.

Sebi generally adopts cautious approach in public issues if the company faces any major impending investigations, say market participants.

“The open offer by the incoming investor could get delayed as the incoming investor could be worried about potential liabilities. Additionally, SEBI could also delay the approval for the open offer, as it did with Fortis when there was a court case against the company. As long as the company and its current management had no role in the irregularities, the takeover by the investor is unlikely to be  impacted. Also, it is not clear as to the reason why the Supreme Court did not find merit in past court rulings and other investigative efforts.”  said Shriram Subramanian, founder, InGovern.

“The observations made by the Supreme Court on Wednesday, especially criticism on Sebi, make an immediate approval for the deal slightly difficult.  Sebi is likely to relook into the fact whether the frauds that happened were orchestrated just by the beleaguered promoter Sameer Gehlaut or was company or any of its other employees have had any role. We have to wait until Sebi forms an opinion on the issue. If Sebi finds the company had no role in it, the deal is likely to get a green light,” said a securities lawyer.

The deal involves IHC buying 41-43% stake in the company initially which would trigger an open offer for another 26% stake, as per the Sebi takeover code.  Last week, the company had announced it would buy back some of its bonds from the market to “maintain a disciplined approach to liquidity and liability management through proactive Asset-Liability Management (ALM) practices.”

Sammaan Capital and Sebi did not immediately respond to Moneycontrol’s request for comments. Their responses will updated once received.