The order found that the pharma company, its promoters and Elliot group which held 15.52% in the company through six foreign institutional investor (FII) sub-accounts had a ‘private arrangement’ to sail through the delisting process
The Securities and Exchange Board of India (Sebi) on Friday evening in 65-page order “censured" Astrazeneca Pharma India Ltd for professional misconduct and unfair trade practises during its 2014 delisting.
This order is a culmination of six years of investigation. The order found that the pharma company, its promoters and Elliot group which held 15.52% in the company through six foreign institutional investor (FII) sub-accounts had a ‘private arrangement’ to sail through the delisting process. These entities conducted themselves in an ‘unprofessional manner’ and indulged in fraudulent and unfair trade practises.
Elliott had picked up a 15.52% stake in the company in May 2013 via an offer for sale (OFS) and decided to tender its shares in 2014. These FII sub-accounts included DB International Asia, Suffolk (Mauritius), Morgan Stanley Asia (Singapore), BNP ParibasNSE 5.01 % Arbitrage, Mansfield (Mauritius) and Merrill Lynch Capital Markets Espana S A SVB.
In June 2014, Sebi began the probe that Elliott could be acting in collusion with the promoters to influence the delisting price, detrimental to the interests of retail shareholders. This put a stop to the pharma companies delisting plans.
Sebi in its investigations found email correspondences between the foreign institutional investor and the company suggesting that they were not treating the OFS as a standalone exercise but as an opportunity to campaign for their ultimate aim of delisting the Company. They were also dealing with each other to arrive at a negotiated deal at best price at which Elliot group would like to tender its shares.
“The series of communications exchanged between the representatives of promoter of the Company and the Elliott Group conspicuously indicate that the promoter of the Company was very pro-active to arrive at an understanding with the Elliott Group about the price at which the Elliott Group would like to exit from their stake in the Company so that AZPAB can realise its ultimate goal of delisting the Company from the stock exchanges," said Sebi in the order.
Sebi also noted that Elliot group voted in favour of the delisting resolution in March 2014 without which the delisting process ‘would have certainly fallen through’.
“(this is) sufficient to conclude that there existed a prior meeting of minds between AZPAB (promoter of Astrazeneca) and the Elliott Group with regard to the proposed delisting of AZPIL (Astrazeneca)," said Sebi in the order.
The maket regulator said that it was disquieting to note is the way the promoters of the Company and the Elliott Group have conducted themselves while brazenly dealing with each other without bothering to think about the interest of other minority shareholders who had held 8.9% of the total shareholding of the Company.
“Nor have they thought about the adverse impact of their collusive behaviour on the interest of other investors in the securities market," said SK Mohanty, whole time member, Sebi in the order.
“The promoter company vigorously try to arrive at an agreed delisting price with the Elliott Group but also with all certainties had finalised a deal based on which the promoter company decided to move the delisting resolution which was quite predictably supported by the Elliott Group," he added.
Finding these violations of Sebi norms the regulator in the order also directed that them to refrain from such ‘fraudulent practises’ and follow its rules in letter and spirit. Sebi also directed exchanges to examine any further plans of delisting by the company to ensure that they are in letter and spirit.
A corporate lawyer declining to be named said that this leniency in Sebi’s stance is puzzling and in contrast to its own stance in similar instances.
“In a case where Sebi finds the conduct of company in collusion with acquirer indulging in unfair trade practice as "glaringly evident" with proof of even emails, to sail through delisting, providing a mere censure is glaringly lenient view. This only means a failed violation or attempt to violate is to be met with leniency. This is plainly against Sebi’s own stand in courts and provision in Sebi Act which provides 10-year imprisonment and 25 crores fine for attempt to violate," he said.
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