flocked to IPOs found no shares coming their way. Reason: A clutch of
operators had cornered the shares meant for them. Now, after a
detailed regulatory probe and a committee to resolve the issue, the
modalities to compensate these investors are nearly final.
Capital market regulator Securities and Exchange Board of India (SEBI)
is set to issue caonsent orders to settle the enforcement action it
had initiated against entities responsible for cornering shares meant
for retail investors in 21 IPOs in 2005-06. By settling the
proceedings against those who had allegedly violated securities laws,
the regulator will be in a position to disgorge the gains made by
them.
The shares of these operators, which have been frozen by the
depositories, will be sold and the proceeds utilised to compensate
retail investors who had applied for shares in IPOs such as IDFC, Jet
Airways, NTPC and Suzlon Energy.
A SEBI probe blew the lid off the scam in 2006. The investigation
showed that in 2005-06, a clutch of operators had filed thousands of
fictitious applications in several IPOs, posing as retail investors.
Thousands of bank and demat accounts were opened in the names of
fictitious individuals to facilitate the plan. Once the scam came to
light, depositories froze these shares on SEBI's orders.
Once they were allotted shares, the operators transferred these shares
to another set of players, who in turn, passed them to financiers who
had provided the funds for investing in the IPOs. These shares were
sold on the first day of listing, helping these operators reap a
windfall — the difference between the IPO price and the listing
price.
The value of the frozen shares is estimated at Rs 60-90 crore. A
committee headed by Justice Wadhwa, which was appointed by SEBI to
work out an equitable method for compensating retail investors, had
come up with a figure of Rs 92 crore. The figure was based on the
closing price of stocks of 21 IPOs on listing day.
The committee had said that retail applicants who did not get anything
should be paid the difference between the offer price and the closing
price on listing day. According to the committee, the differential
could be taken as a proxy for the unjust gains made by the scamsters,
who cornered shares meant for individual investors.
According to the proposal now under SEBI consideration, applicants who
did not get a single share in these IPOs will be compensated first. If
any surplus is left after compensating them, those who were allotted a
lower number of shares than what they had applied for would be
compensated.
A senior official associated with the compensation exercise said that
several cases were at an advanced stage and the process of acceptance
of consent orders was under way. "The aim is to process it on a
priority basis and hopefully distribute the proceeds over the next six
months," he said.
This will be the first case of disgorgment of ill-gotten gains in the
Indian capital market, although it is an established practice in
mature markets. In almost all the 21 IPOs, the shares were
listed at a premium to the offer price.
During the SEBI probe, it came to light that operators had cornered
shares representing 0.52% of the total number of shares allotted to
retail individual investors in the Jet Airways IPO. In the Suzlon
offering, 3.74% of shares were allotted to operators using over 21,000
different accounts while in the NTPC issue, the operators used 12,853
accounts to corner 1.30% of the total number of shares meant for
investors.
The IDFC offer price was Rs 34, against which it got listed at Rs
49.90, a premium of over 46%. The shares closed on the opening day at
Rs 69.50. For Yes Bank, the offer price was Rs 45. On listing, it rose
to Rs 65, a 44% premium, and closed at Rs 61. Maruti Udyog offered its
shares to investors at Rs 125. On listing, it climbed to Rs 158.4, a
premium of 27 %, and closed the day at Rs 164.05.
Amar Remedies, which had an offer price of Rs 28, listed at Rs 50, a
premium of 78%. For NTPC, the offer price was Rs 62 and the listing
price Rs 70, a premium of 12.9%, before it closed at Rs 75.5. TCS had
an offer price of Rs 850, listed at Rs 1,076 — a premium of 27% — and
ended the day at Rs 987. Suzlon offered its shares at Rs 570 and it
listed at Rs 640, a premium of 25%. It closed at Rs 690. Jet Airways
offered shares at Rs 1,100, listed at Rs 1,211, a 10% premium, and
closed at Rs 1,305.
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