Ruchi Soya’s 8,764% share price jump after acquisition by Baba Ramdev forces SEBI to rethink rules

The Securities & Exchange Board of India has sought comments on a proposal to cut the time given to companies that re-list after bankruptcy resolution.

A 8,764% surge in the shares of a company with a minuscule public shareholding has prompted India’s regulator to consider changing its rules for firms emerging from the nation’s bankruptcy process. The Securities & Exchange Board of India has sought comments on a proposal to cut the time given to companies that re-list after bankruptcy resolution to boost the free float to at least 10% within six months from 18 months currently. The rule mandating such companies to eventually get to the minimum shareholding of 25% within three years of re-listing remains.

“In one recent case it was observed that post insolvency resolution process, the public shareholding decreased to 0.97%, and showed 8,764% increase in its share price,” Sebi’s consultation paper said, listing Ruchi Soya Industries Ltd. and four other companies that re-listed between September 2018 and February.

Ruchi Soya was acquired by a Yoga guru Baba Ramdev’s Patanjali Ayurveda-led consortium last year via an insolvency resolution process. The founders held 99.03% of the company’s capital as of March 31.

The negligible free float saw Ruchi’s shares soar from about 17 rupees at the time of re-listing on Jan. 27 to 1,519 rupees on June 26. The price has since halved. Still, at its peak, the company was valued at $6 billion, ahead of bigger consumer-staples producers including Marico Industries Ltd. and Colgate-Palmolive India Ltd. The stock was down 3% to 699 rupees at 9:23 a.m. in Mumbai on Thursday.

“Such low public shareholding raises multiple concerns like failure of fair discovery of price of the scrip, need for increased surveillance measures etc. and may therefore pose as a red flag for future cases,” the regulator said.

A second option is to make it mandatory for such companies to have at least 5% public shareholding at the time of re-listing, Sebi said, adding that this threshold may not be significant to allay the concerns about illiquid stocks.

Market participants have until Sept. 18 to submit their views on the proposal.

Ruchi Soya swung to a profit of 122.6 million rupees ($1.6 million) in the quarter ended June, while its revenue dropped 5% from the preceding three-month period to 30.4 billion rupees.