Vaswani IPO Scam

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Case Details:

Case Code : FINC073
Case Length : 11 pages
Period : 2006-2011
Pub. Date : 2011
Teaching Note : Not Available
Organization : Vaswani Industries Limites.
Industry : Steel
Countries : India

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"A detailed investigation shall be initiated into the matter.... The investigation shall be expeditiously completed within a period of 30 days, so that a decision on the listing application (Vaswani Industries Limited's IPO) by the stock exchanges can be taken within the statuary time limit provided under the Companies Act." 1

-Securities and Exchange Board of India,, May 27, 2011.

"In several IPOs, operators rig up subscription and they may do so even without the knowledge of the i-bankers." 2

-Navjeet Singh Sobti, 3 Livemint, The Wall Street Journal, May 2011.

On May 13, 2011, the Securities and Exchange Board of India 4(Sebi) stopped the listing of Vaswani Industries Limited's (VIL) shares on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). This move came on the heels of several complaints received from Retail Individual Investors (RIIs) and Non-Institutional Investors (NIIs). VIL and Ashika5 Capital Limited were ordered to give the withdrawal option to RIIs and NIIs. This was the first time that Sebi had stopped a listing after allotment of shares to investors. Commenting on the irregularities of the VIL Initial Public Offering (IPO), Sebi said, "Based on the data received from the exchanges or registrars regarding the subscriptions-

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or withdrawals and preliminary inquiries into the matter, SEBI has advised the stock exchanges to withhold the listing of securities until further instructions."6On April 29, 2011, VIL came up with an IPO for 10 million equity shares with a face value of Rs. 10, in the price band of Rs. 45 to Rs. 49. The issue was made through a 100% Book Building Process. Some analysts analyzed the fundamentals of the company and commented adversely. MLR Securities7 commented, "MLR Securities has recommended avoiding the issue, citing small size of operations, weak fundamentals and expensive valuations and the company is asking for a P/E of 23-25 times its FY11 annualized EPS which is very expensive compared to peers like Godawari Power and MSP Steel & Power. Considering its small size of operations, weak fundamentals and expensive valuations we recommend investors to avoid the issue."8

Background >>

1] Press Trust of India, "Sebi to Probe Alleged Irregularities in Vaswani IPO,", May 27, 2011.
2] Pramit Bhattacharya, "Vaswani Industries Barred from Listing,", May 27, 2011.
3] Navjeet Singh Sobti is a Executive Vice-Chairman in Almondz Global Securities Limited. Almondz Global Securities Limited is a firm based in New Delhi, India. It deals in the businesses of various financial services.
4] Securities and Exchange Board of India is known as market regulator of India.
5] Ashika Capital Limited is the book running lead manager of the issue.
6] PTI, "SEBI withholds listing of Vaswani IPO,", May 19 ,2011.
7] MLR Securities is a Mumbai-based stock broking and financial service providing company. It is promoted by Mahesh Kumar Damani Group.
8] "Avoid Vaswani Industries IPO: MLR Securities,", May 03, 2011.

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