VASWANI IPO SCAM

Case Facts

Vaswani:
 Name : Vaswani Industries ltd (VIL)
 Incorporation : 22nd, July 2003. Raipur, Chhattisgarh
 Holding Company : Vaswani Group of industries
 Manufactures : Sponge iron, steel billets and ingots and captive
power generation

Installation and Utilization Capacity

 Sponge iron manufactured with Coal and Gas based plants.
 Steel plant was integrated with new technology entirely.
 Company could not achieve full production capacity since 2008 to 2010.
 Company utilized its own power for production and surplus sold to
Chhattisgarh state electricity board.

exhibit 1: installation and utilization capacity

Installation Production Utilization (%)

particulars
2010 2009 2008 2010 2009 2008 2010 2009 2008

Sponge Iron
90,000 60,000 60,000 47,378.03 37,809.57 42,442.21 52.64 63.02 70.74
(MT)
Steel
billets/ingots 36,000 36,000 36,000 4,350 36,000 14,260 12.08 100 39.61
(MT)
Power
7.5 7.5 7.5 7.5 7.5 6.5 100 100 86.67
(MW)
 Revenue declining from 2009 to 2010
Revenue and Profit After Tax declining (in millions)

Particulars 2010 2009

Revenue 985.15 1509.25

Profit After Tax 36.82 40.89

 The calculated pre issue earnings per share: ₹3.15

 Due to expansion in the production loan grew ₹399.48 to ₹520.39 millions
from 2009 to 2010.

IPO Details
 Sponge iron business - India is largest producer in the world- with total
production 20.96 million tonnes as on 2009.
 VIL sponge iron & steel billets & ingots market expanded in MP, MH,
Uttaranchal and Chhattisgarh.
 Company till 2011
 could be market leader in long term
 experienced promoters in industry
 has good employer-employee relations (no strikes, lock out, labour
protest)
 Despite of strengths, ICRA rating  Grade 2  Below average company
fundamentals.
 VIL planned to raise funds to
 disburse loan amount : ₹243.75 millions
 long term W.Cap requirements : ₹174.7 millions
 since last 5-year negative CF statements.
o  If CF is negative  disbursements are higher than revenueshigh
potential risk of insolvency.
 VIL planned to raise about ₹ 450 to 490 million.
o Subscription time : 29th April, 2011 – 3rd May, 2011.
o Subscribed IPO amount : 4.16 times i.e.; 499.2 million
th
o Issue price @ 10 May, 11 : ₹ 49
 False demand creation
 At beginning created no enthusiasm but end gained subscriptions by closing
date
Subscriptions Received
date subscription received
29 Apr,11 0.95 includes 0.10 of RII
02 May,11 4.16 times

03 May,11 1.28 times

 Subscription inflated by NII category @ 11.29 times by 8 sub-

syndicate members.
 RII misinterpreted the demands and participated in bids.
 Before allotments itself 6 sub syndicates cancel their applications.
 SEBI investigated in accordance of prima facie of abused bid of
shares which raised doubts on genuineness of applications and
banned all sub-syndicates members issues.
 Sub syndicates fake demand as they did not pay subscription amount; due to
cancellation  issue dropped to 1.28 from 4.12
 RII has got more shares than they anticipated.
 About 100 investor complaints lodged about allotment irregularities with
SEBI.
 In investigation found,
 Sub syndicates used new techniques for demand inflation and mis
guided RII and NII’s.
 Sub syndicates did not submit cheques related to 63,92,040 shares for
encashment63.92% of total issue ₹ 313,209,960 @ cap price
₹49.
 9 Bajaj holding cos bid  42.86% of IPO in NII  for 42,86,520
shares @ ₹ 49 (cap price)  ₹ 210,039,480  rejected applications
– supporting cheques could not be encashed/payment stopping
instructions to bank. === this action inflated demand 10%
 Ashika ltd at NII @18.36% bid in total IPO ------- withdrew after
closing of bidding book.
  Finvest, a holding Co of Rikhav misled by subscription level bid for
18.65% of IPO placed
 for ₹37.4 million demand by financing its clients.
 187 RII investors 7,62,960 shares
 Rikhav bid 2,85,600 shares financed by manba broking
 Manba I&S bid  816000 through Rikhav
 Rikhav placed bulky on behalf of their clients to inflate demand and
allowed large number of NII’s to place on high bids, arranging
financing and controlling the large bids placed on RII clients. Later
cancel or withdrew bids.

Vaswani moves to SAT

SEBI Order in the matter of Vaswani Industries Ltd.

1. Listing of security of the company should be stopped till an investigation of

the withdrawal of applications is complete.
2. Before permitting the security of the company to list, investors should be
given an exit option so that the securities allotted to them in the IPO can be
withdrawn; subsequently, a call on the investment in the company can be
taken by the investors post listing of the same.
3. A detailed investigation will start in this matter which will complete in 30
days (by 25th June 2011).
4. The bankers will place the amount in the public issue account in an interest
earning account.

SEBI withholds listing of Vaswani Industries Ltd

The public issue of Vaswani Industries Ltd. was open during April 29, 2011 to
May 03, 2011. Post the closure of the issue, SEBI had received complaints from
investors regarding irregularities in the subscriptions in the said issue. Based on the
data received from the exchanges/registrars regarding the
subscriptions/withdrawals and preliminary inquiries into the matter, SEBI has
advised the stock exchanges to withhold the listing of securities until further
instructions. Inquiries in the matter are in progress. Based on the findings,
appropriate action would be taken.

SEBI's Press release in the matter of Vaswani Industries Ltd.

1. Vaswani Industries Ltd shall give withdrawal option to all the investors who
have been allotted shares in the non-institutional investors category and the
retail individual investors category.
2. Investors who apply in the withdrawal option shall enclose a Delivery
Instruction Slip.
3. In the event of refund/withdrawal on the exercise of the withdrawal option
by an investor, the Company may deduct the expenses incurred in
connection with its IPO.
4. Rikhav Securities Limited is prohibited to act as a syndicate member/sub-
syndicate member for all forthcoming issues.