Sterling & Wilson Solar Ltd examined by SEBI. Market regulator Securities Exchange Board of India (SEBI) is examining whether the promoters of Sterling & Wilson Solar Limited (SWL) side-stepped regulatory norms and diverted funds raised in the initial public offer (IPO).
Understanding Sterling & Wilson Solar Ltd
SEBI investigation if SWSL promoters have violated the Issue of Capital and Disclosure Requirements (ICDR) regulations and also the Companies Act, 2013 with regard to misstatement in the prospectus. Regulations require that the money raised in the IPO should be utilized only in the way stated in the prospectus. It is on this basis the public institutions had valued the company and invested in the IPO.Hence, in this case, promoters of SWSL are also directors of the company.
“The primary object of the IPO was to raise funds for re-payment of promoter loans. This has been violated and a mere amount of Rs 250 crore was repaid against ₹ 2,850 crores and interest. It is a serious violation and SEBI needs to look into the detail of around ₹ 3,000 crore worth of fund diversion. Therefore, currently, only minority shareholders are suffering,” said Arun Kejriwal, founder, KRIS Capital.
Role of merchant bankers
Since, apart from SWSL management and promoters, SEBI is also probing the role of merchant bankers to the issue as it is their legal obligation to ensure that a company, which had raised money from public, does not divert it for other purposes, sources in the know told Business Line.
When contacted, Sterling & Wilson Solar Ltd said in a statement, “We have not received any communication from SEBI pertaining to the queries stated in your email. We are therefore surprised with the nature and language of these queries and as a matter of company policy will not comment on market speculation.”
SEBI did not respond to a query from Business Line.
Additionally, “If the promoters had given undertaking in the IPO prospectus that they will repay the loan within given time and if they fail to do so, it is a violation of SEBI law,” said J N Gupta, founder promoter, SES, a proxy advisory firm.
Share price crash
Large investors were rushing out of the counter. It came to light that the company promoters had not used the money. It raised in the IPO for the purpose as stated in the prospectus. The share price of SWSL crashed by 65 percent within just three months after listing in August this year to touch a low of ₹260 on November 20 from a high of ₹755 on August 20. The IPO price was ₹780, which has never come on the bourses since listing.
Sterling & Wilson Solar Ltd promoters had stated in the IPO prospectus that they would repay the loan. They had taken from it, through the proceeds of the IPO that they raised by selling theirs. The promise was to repay the loan within 90 days from the listing of shares in the share market. , which would have made the company debt free post. It was this promise that swayed investors to put money in SWSL and the IPO just managed to crawl through.
But the promoters have now sought an extension to repay the loan. SWSL instead of witnessing a net decrease in outstanding loans. It saw a slight increase in outstanding loans at the end of September to ₹2,085 crore (₹2,341 crore with interest). The promoter group has also requested for a revised repayment schedule to clear dues. It “will endeavour to reduce the loans outstanding by ₹750 crore by the end of the year.”
Though, 30 percent size of issue lessed by the company. By 92 percent the curtailed book subscribed. Still, the promoters managed to raise ₹2,850 crore (before expenses). It kept enough money in the hands of promoters to clear outstanding dues to SWSL.
SEBI probed Sterling & Wilson Solar Ltd promoters. Its merchant bankers side-stepped the rules to use IPO funds. It decided on action taken. SEBI inspected the role of merchant banker. It undertook adequate steps to check IPO money wasn’t diverted. Hence, banker’s checked money raised from the IPO ensured to set proper mechanism.
The sources say that the alleged violation by Sterling & Wilson Solar Ltd promoters pertains to SEBI Regulations. Therefore, its related to Issue of Capital and Disclosure Requirements (ICDR) and Prohibition of Fraudulent and Manipulative Trade Practices (PFUTP) and merchant banking regulations.
“However, the regulator will examine the genuineness of the problem faced by the promoters in meeting their obligation. Regulator satisfied by the genuineness of the problem. There is no intent related issue and the regulator can take a lenient view. However, the regulator found that the promoters could have easily complied with the condition. It liquidated any of their liquid investment, regulator will look into the intent related issue as well,” Gupta said.
Final Words regarding Sterling & Wilson Solar Ltd
According to Regulation 24(4) of ICDR Regulations, the lead manager(s) shall call upon the officials. In case of an offer for sale, also the selling shareholders, to fulfil their obligations. It disclosed by them in the draft offer document and the offer document. It required in terms of these regulations.
