- Wealth PMS
BSE has listed a large number of stocks that have come under their radar for issuing shares to promoters or through a preferential issue. The full list includes names like CMI, Lykis and Cupid which have marquee investors who are in the crosshairs because they are listed only on the BSE. (BSE+NSE listed stocks aren’t hit with this rule).
The following stocks will be completely banned from further trading, starting March 31, 2016.
|Name of the Company
|Autopal Industries Ltd.
|Diligent Industries Ltd.
|Frontline Business Solutions Ltd.
|Global Infratech & Finance Ltd.
|Grandma Trading & Agencies Ltd.
|Greencrest Financial Services Ltd.
|High Ground Enterprise Ltd.
|Hindustan Wires Ltd.
|Malabar Trading Company Ltd.
|Pacheli Enterprises Ltd.
|Patidar Buildcon Ltd.
|Pil Italica Lifestyle Ltd.
|Presha Metallurgical Ltd.
|Pro Fin Capital Services Ltd.
|PS IT Infrastructure & Services Ltd.
|Radix Industries (India) Ltd.
|Ram Minerals and Chemicals Ltd.
|Rammaica India Ltd.
|Risa International Ltd.
|Sphere Global Services Ltd.
|Superior Industrial Enterprises Ltd.
|Svaraj Trading & Agencies Ltd.
|Swadeshi Industries & Leasing Ltd.
|Tilak Finance Ltd.
|Tirupati Industries India Ltd.
|Unno Industries Ltd.
|Wagend Infra Venture Ltd.
|Zyden Gentec Ltd.
None of these shares will trade after 31 March 2016.
The problem is: these companies had issued preferential shares to promoters or through a preferential issue, and, apparently, have not followed the complete procedure (or there’s something missing).
How can they fix it?
According to the BSE:
1) They need to get an auditor certificate of amount raised in pref issue, why, how the company benefits, how have the funds been utilized supported by bank statements, and an auditor certification that no siphoning out has happened.
2) Support all the above with cross referenced documentation (the auditors can’t just state the above)
3) Give details of Board meeting, letter to shareholders, shareholders passing resolution etc.
4) Then all this will be placed in BSE Auditors Committee who can then call company officials for personal hearing
5) If everything is okay they will start the revocation of suspension process.
This can take months – because it will take time to get documentation of how, for instance, a company will benefit from raising money from promoters. (One can always ask, why from the promoters and not others?) And then, it’s possible in some companies that the raised money was paid back to promoters in the form of increased rent, or services provided etc.
What to do if you own such shares: Wait and Hope
Even if some of these companies genuinely had good reasoning, just doing the documentation is a long winded process. Given that these companies are only listed on the BSE, if you own their shares, you can’t exit after 31 March 2016 until they are relisted. Worse, you probably can’t even exit now as many of them have gone into “lower circuit” since too many people want to sell. They can’t even list on the NSE – the NSE is more stringent and will immediately tell the companies to fix their BSE issue first.
If you trust the management, you should just stay put and hope they get out of this fast. For instance the Chairman of Lykis is the legendary Vijay Kedia who has had an excellent history finding good companies, and if you trust that he will stay on top of things, you might have the confidence to hold the shares.
But no matter how famous an investor is, there is no chance that this issue will be resolved overnight. A move like this will result in months of “non listing” so you will have shares that are not traded. Assume at least six months of no-listing.
Our View: We don’t recommend BSE only stocks, but it’s prudent to know that such a situation can happen with any stock, especially small caps. Let’s hope that this action prompts other promoters to be clear and transparent in their processes.
EndNote: Why Not Spicejet?
Spicejet is also listed only in the BSE, and they have seen a share ownership change (ex-Promoter Maran sold to new promoter Ajay Singh). This change was done through authorizing new warrants to the ex-promoter (which haven’t yet been issued) and there was no open offer for the company even though the promoter share transfer should have prompted one. Will BSE delist Spicejet too? Or is this action only limited to companies that don’t have the political patronage that apparently exists with Spicejet? Let’s see how that goes.