Six days after SEBI issued a show-cause notice, Brightcom Group has come out with a clarification to the shareholders on promoters' stake sale between 2014 and 2020. But that has failed to stem the fall in the stock, which was locked in a 5 percent lower circuit in the morning trade on April 21.
The digital marketing company, which is in the eye of the storm having wiped off 90 percent of investors' wealth in the past year, said its promoters had pledged a part of their holdings with banks and non-banking financial companies (NBFCs).
"These financial institutions invoked the pledge and sold shares in the market," the company said on April 20.
The company, however, is yet to reply to the Securities and Exchange Board of India’s notice, which raises questions about the firm’s accounting practises among others.
Pledged shares are invoked when their market value drops and lenders want extra margin. If a firm is unable to offer this margin, lenders can activate the pledge.
According to Brightcom, its promoters pledged a part of their holdings to ICICI Bank, SBI, Canara Bank, Axis Bank and a few NBFCs in 2013-2014 to “collateralise the business debt'” This was done again between 2016 and 2020.
In both the cases, pledged shares were invoked. The quantum was a little over 23 crore shares.
Also Read: Brightcom Group faces Sebi whip for accounting irregularities, disclosure omissions
What did SEBI say?
As per the SEBI order, promoters’ shareholding in BGL progressively fell from 40.45 percent on March 31, 2014 to 13.96 percent on March 31, 2020 and further to 3.51 percent on June 30, 2022.
"The promoters offloaded shares at prices which were artificially propped up by showing higher profits through accounting irregularities," it said.
To this, Brightcom said "pledged shares sold by lenders over the six-year period were at rock bottom prices".
"The company and promoters shall present factual data, in greater and more granular detail, to SEBI, in its upcoming submissions and hearing, and in the subsequent adjudication process," the company said in the exchange filing.
What remains unanswered?
In 2022, when investors flagged off the sharp drop in promoter shareholding, chairman and co-founder Suresh Kumar Reddy became a partner in four LLPs - Aradhana Commosales, Sarita Commosales, Kalpana Commosales and Shailini Sales.
Also Read: Brightcom worst performer in 2022 after 2,500% rise in 2021
These LLPs were then moved from the public shareholding section to the promoter category in April 2022, which saw many retail investors tweet their discontent.
"Promoters dumped 19 percent on retail.. then, to hide they suddenly somehow without any commercial transaction become partner in those LLPs," tweeted a user.
Accounting irregularities
The company took impairment charges worth Rs 868.30 crore in its balance sheet for FY20. It said that the impairment was on account of subsidiaries, so it was not reflected in the P&L (profit and loss) statement.
According to SEBI, it amounts to “accounting irregularities”. "The company’s actual profits would have been significantly lesser from the reported profits. Further, the assets and reserves would also be significantly different from what were disclosed in the balance sheet," it said.
At 10.15 am, the stock was quoting at Rs 12.05 on the NSE. Trading volumes were significantly higher at 20.61 million shares compared to the previous day's two million shares.
The stock was investors' darling in 2021 when it zoomed from Rs 4 in April to a high of Rs 118 in December. Since then, it has tumbled close to 90 percent.
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