Recently, SME-IPO market caught the market attention for wrong reasons with two of them – Trafiksol ITS Technologies and C2C Advanced Systems – censured by regulators.
The Securities and Exchange Board of India (SEBI), in fact, cancelled the initial public offering of Trafiksol ITS Technologies which had raised funds successfully. It asked the company to return the funds raised through the IPO to respective investors who were allotted shares.
The IPO of Trafiksol was launched between September 10 and 12 and the company raised ₹44.87 crore with the issue witnessing a super-duper response of over 345.65 times from all category of investors..
The cancellation order from SEBI came after it had conducted a detailed investigation following reports of the company plans to divert IPO funds to a shell company.
Post the closure of the issue and allotment of shares, a complaint was received by SEBI and BSE from Small Investors’ Welfare Association-SIREN alleging that the objects of the aforesaid issue by Trafiksol included purchase of software worth ₹17.70 crore from a vendor who had questionable financials, and failed to file its annual financial statements with the Ministry of Corporate Affairs. In view of the complaint, the BSE in consultation with SEBI had deferred the listing of the shares of the company.
Shell entity
After having concluded that vendor as a ‘shell entity’, Ashwani Bhatia, whole-time member of SEBI directed Trafiksol to refund the money paid by the investors, who had been allotted shares in the IPO.
BSE, in co-ordination with the bankers to the issue, was asked to oversee the refund process which was orderded to be completed within a week.
C2C Advanced
However, C2C Advanced, an IPO at NSE-Emerge platform, sailed through after SEBI/NSE cleared the issue. The IPO that was opened between November 22 and November 26 at a price band of ₹214-226, saw an overwhelming response. The stock, which was supposed to be listed on November 29, was deferred on receiving complaints of discrepancies in its financial statement.
Following this, the National Stock Exchange, in consultation with SEBI, had asked the company to provide subscribers a withdrawal option and initiated inspection through independent auditor. Using the withdrawal option, some retail investors, exited from the IPO. After C2C Advanced cleared the air, the stock was allowed to be listed at the bourse.
These moves from the exchanges and SEBI are heartening to see as they swung into action immediately on receiving complaints. However, as a first regulator, exchange should do more while clearing IPO papers.
Besides, in the case of C2C Advanced, the independent auditor report was not made public neither by the company nor by the exchanges. Though it would be difficult for the company and merchant bankers to send the report individually to all those who had applied, it should have been made available on the exchange/merchant banker/registrar websites prominently.
Even after strong scrutiny, if these things happen, it shows that exchanges should further tighten up their IPO clearing mechanism and fix responsibility, especially on merchant bankers. Hope recent developments would make all the stakeholders more alert while handling SME-IPOs.
