Markets regulator Securities and Exchange Board of India (Sebi) has kept in abeyance the “issuance of observations” with regard to the IPO of Go Digit General Insurance Ltd which had filed draft papers for the IPO with the regulator on 17 August 2022. Go Digit’s proposed IPO consists of a fresh issue of Rs 1,250 Cr from the company and an offer for sale of 109,445,561 shares from four shareholders, including the promoter.
Though promoted by Kamesh Goyal – former Chief Executive Officer of Bajaj Allianz General Insurance and Bajaj Allianz Life Insurance Company, Go Digit, which counts cricketer Virat Kohli and his wife, Bollywood actor Anushka Sharma among its investors, is largely controlled by the Fairfax Group owned by Canadian person of Indian origin, Prem Watsa, who was awarded the fourth highest civilian award of India, Padma Shri, in 2020.
Sebi has not disclosed the reason for withholding the issuance of observations on Go Digit IPO. However, a close scrutiny of the IPO draft papers reveals that the company is yet to obtain IRDAI’s clearance on certain matter related to the promoter-company. Currently, almost the entire promoter holding (83.65%) of the issuer company is held by Go Digit Infoworks Services Private Ltd (GDISPL). While Kamesh Goyal and his Oben Ventures LLP together hold 54.75% of GDISPL’s tiny equity capital of Rs 1.02 Cr, Mauritius-registered FAL Corporation of the Fairfax group has a minority stake of 45.25%. Nevertheless, GDISPL has issued Rs 780 Cr worth of Cumulative Convertible Preference Shares (CCPS) and entire amount issue was subscribed by FAL Corporation.
On June 7, 2022, the issuer company (Go Digit General) had applied to IRDAI, seeking its approval for the conversion of 7,800,000 CCPS of the promoter-company (GDISPL), by the CCPS holder (FAL Corporation, Mauritius), into equity shares. IRDAI, through its letter dated July 26, 2022, drew reference to the IRDAI (Registration of Indian Insurance Companies) Regulations, 2000, which defines an ‘Indian promoter’ to mean a company, as defined in the Companies Act, which is not a subsidiary, as defined in Section 2(87) of the Companies Act, and, consequently, communicated that Go Digit’s application cannot be considered by it, given that pursuant to the proposed conversion of the CCPS, the promoter company (GDISPL) would become a subsidiary of a foreign company (FAL Corporation, Mauritius).
The CCPS have unusual conversion terms. They have fixed a differential conversion ratio of one equity share for 2.324 CCPS up to 6,300,000 CCPS and one equity share for 3.55 CCPS for the remaining 1,500,000 CCPS. The terms also facilitated the CCPS holder to hold equity shares of GDISPL up to 82.07%. Even though the authorized capital of GDISPL is Rs 1400 Cr, the equity portion is only Rs 4.65 Cr of which just Rs 1.02 Cr is fully paid-up. Interestingly, GDISPL has forfeited 3,606,397 partly paid equity shares (to the extent of Rs 9) of face value of Rs10 and premium of Rs 1490 each issued to promoter-entities Oben Enterprises and Oben Ventures. In other words, the promoter-entities have foregone a whopping amount of more than Rs 540 Cr. If the promoters are willing to forego such a large amount, that too after paying 99.93% of the issue amount, their intention is certainly questionable!