Opinion | Did SEBI just say that the ICICI Securities issue flopped?

“Further, it is difficult to comprehend what changes in fundamentals of ISEC during the bidding period could have caused IPRU to make additional bids of Rs 240 crore on day 3 of the public offer, once a fairly large bid of Rs 400 crore was already made on day 1,” the regulator said.

The suggestion is that ICICI Pru AMC pitched in with the second tranche because the QIB segment was in danger of subscribing to less than the minimum 75 percent for the issue to go through.

According to reports, SEBI has directed ICICI Pru AMC to pay Rs 240 crore, the amount equivalent to the bids made on the final day of the ICICI Securities IPO, to all the five of the schemes that subscribed to it. Moreover, the AMC will have to pay a 15 percent interest per annum from the date of allotment to the date of actual payment.

If the Rs 240 crore is to be refunded does that not mean the IPO issue of ICICI Securities had actually bombed? Regulation 26 (2) is clear that if the QIB is unsubscribed then the issue stands devolved. The ICICI Securities share price is now 40 percent lower than the issue price. Should not all investors be treated at par with the unitholders of ICICI Prudential and get their money back, with 15 percent interest?

It is also surprising that the parent company, ICICI has been let off, though it is the eventual beneficiary.

Furthermore, there are a few questions that may arise going forward.

First is the fact that ICICI Pru AMC may be wrong in spirit but it is not legally in the wrong to invest in companies it wants to, even group companies. Since there was a loophole in the law which allowed ICICI Pru AMC to invest, it did so. A mutual fund is prohibited only from investing in any unlisted security or a security issued through private placement by an associate or a group company of the sponsor.

It needs to be seen how ICICI Pru AMC will react to the ruling, as its Rs 640 crore investment in an over Rs 4,000 crore issue is well within the permitted limits of 25 percent of the issue. If it decides to appeal to a higher authority it may be on a strong wicket.

Having said that, ICICI Pru AMC was clearly wrong in using unitholders’ money to invest in a grossly overvalued stock. ICICI Securities opened 13 percent lower when it got listed, clearly suggesting the overpriced issue was done to help ICICI get a better realisation for its holding, which it partly offloaded at the time of the issue. ICICI Securities currently trades at Rs 317.

SEBI seems to be on a roll in this case as it has also asked ICICI Pru AMC to pay the investors who have redeemed their units during the period starting from the date of allotment in the ICICI Securities IPO and till the date when the AMC pays back to the schemes. The AMC has also been asked to pay the interest from the date of redemption.

Here SEBI is making the assumption that all the redemptions from ICICI Pru AMC were on account of its investment in the IPO of its broking arm. There may be investors who would have exited from the MF for other reasons.

SEBI as a regulator has been learning after investors lose money. It tightened norms for mutual funds investment in corporate debt after the JP Morgan – Amtek Auto fiasco. Now it seems to be learning from ICICI Pru – ICICI Securities mistakes.

To be fair to the market regulator, it has of late taken a number of steps to help break the mid-cap small-cap bubble. But there is always a scam waiting around the corner, given the free run enjoyed by unscrupulous elements in the market over the years.