The capital market regulator’s probe into the irregularities in various initial public offerings (IPOs) has brought to the fore a much-deeper rot due to the alleged nexus between merchant bankers and companies. Every time the regulator has questioned the banker, the latter has washed his hands off saying the company did not disclose the information. In the process, it is the investor who lost money due to a misinformed investment decision.
On Tuesday, the Securities and Exchange Board of India (Sebi) confirmed the interim ban on Almondz Global for failing to do proper due diligence during IPO of PG Electroplast. Similar orders were passed against PNB Investment Services (Taksheel Solutions IPO) and Chartered Capital and Investment (RDB Rasayans IPO). All these merchant bankers were banned from taking any fresh assignment in December last year.
Merchant bankers, however, found an interesting alibi while defending their actions. The company did not inform us and we could do nothing about it, they say. ?The due diligence process was rigorous and Almondz had left no stone unturned in so far as the disclosure and documentation in respect of the IPO of PG Electroplast (PGEL). Further, due to the deep-rooted fraud perpetrated by PGEL, it was next to impossible for Almondz as merchant banker to unearth the same,? said Almondz in its submission to SEBI.
Experts say the bankers cannot pass the blame on the company and their role to cross-check every piece of information provided by the firm and also question anything that looks even remotely suspicious.
?Many times, information that could be questioned by investors is swept under the carpet,? said a person familiar with the development. ?It is common knowledge that the bankers and promoters work in close proximity during an IPO and some compromises are made. Bankers want their fees and promoters the maximum possible issue price,? he said on the condition of anonymity.
On the issue of Taksheel Solutions, when Sebi questioned PNB Investment Services about cancellation of a specific land allotted to the company in Andhra Pradesh, the merchant banker responded by saying that the company ?concealed the fact of cancellation? from them. Sebi, however, found PNB ?cavalier in its approach on this issue?.
Interestingly, a merchant banker who has worked with a few mid-size companies says that at times it becomes really tough for the banker to get to the root of the disclosures made by the company and errors, if any, are purely unintentional.
