Pipavav defence deal making SEBI nervous, know why

Smelling irregularities, market regulator SEBI has asked stock exchanges for details of trades done in the Pipavav Defence stock prior to the company's recent announcement of stake sale to Reliance Infrastructure. The Economic Times has reported that SEBI is investigating whether some market participants had built positions in the stock, aided by prior knowledge on the matter or not.

As per what an exchange official told ET, Exchanges have informed the regulator that they have written to the company and are waiting for its response. When ET tried to dig deep into the issue and sent an email query to BSE and Pipavav Defence on the matter, they did not elicit any response till the time this news went to the press.

Pipavav shares had surged 55% to Rs 76.50 during the month before the deal's announcement on March 4. Pipavav Defence and Reliance Infra, in separate disclosures to stock exchanges, announced signing an agreement according to which Reliance Infra would buy 13 crore Pipavav shares, equivalent to 17.66% equity stake and valued at Rs 819 crore, from the promoters.

Besides, Pipavav also agreed to sell an additional number of equity shares at the same price (for up to Rs 354 crore) to take Reliance Infra's total stake to 25.10 per cent, after taking into account the acquisition made under the open offer.

The financial daily has reported that the market was abuzz with speculation that some investors created positions in Pipavav shares amid the run-up in the stock price. The combined average daily volumes in the stock rose threefold from 81 lakh in January to 2.2 crore in February. The average daily volumes in December stood at 25 lakh.

Confirming the regulatory action, an official at one of the stock exchanges told the ET, "Exchanges have written to Pipavav asking for all the details about the deal as well as the disclosure made by the company with regard to the transaction."

Pipavav shares have declined 21% since the deal announcement as Reliance Infra was offering to buy the stake at Rs 63 a share while the stock was trading at a little over Rs 76.

ET has reported that Reliance Infra, saddled with debt of more than Rs 24,000 crore, made an open offer for acquisition of further 26% stake from public shareholders for Rs 1,263 crore at Rs 66 a share. Between January 1 and February 20, 2015, about 1.5 crore shares belonging to promoters of Pipavav were sold by the lenders with whom the shares were pledged.

In a disclosure to BSE on February 20, 2015, Pipavav said JM Financial and IFCI liquidated 1.2 crore and 50,000 shares, respectively, which were pledged with them as security. JM Financial is also the banker for the open offer.

As on December 31, 2014, the promoter group led by Nikhil Gandhi held 44.5% stake in Pipavav, of which 99.66% had been pledged. Billionaire investor Rakesh Jhunjhunwala held 3.41% as on December 31, 2014.

(Image: Reuters)