Circular funding weaves unholy alliance!
Gone are the days when companies tapped capital market for funding expansion plans. Of late, listing and enhancing promoters’ net worth have become the main objective of many an issuer.
Take the case of Lakhotia Polyesters (India) Ltd (LPIL). The 2005-registered Pimpal-Gaon (Maharashtra) based company, whose current manufacturing asset-base is not even Rs 1.5 cr, wants to raise Rs 5.08 cr through an IPO. As per the offer document, the main object of the issue is augmenting of long term working capital (Rs 360 lakh). The balance is meant for General Corporate Purposes (Rs 118 lakh) and Issue Expenses (Rs 30 lakh). While LPIL presents itself as a leading metallic yarn company, a significant amount (Rs 3.8 cr) has been deployed in non-current investment.
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OFFER AT A GLANCE |
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Name |
Lakhotia Polyesters (India) Ltd |
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Offer Amount |
Rs 5.08 cr |
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Offer Quantity |
14.52 lakh shares of Rs 10 each |
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Offer on Total Equity |
38.8% |
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Post-issue Free Float |
68.2% |
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Post-issue Promo stake |
31.8% |
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Post-IPO Capital |
Rs 3.74 cr |
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Offer Price |
Rs 35 |
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Application Quantity |
4,000 & Multiples of 4,000 |
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Offer Opens |
March 19, 2013 |
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Offer Closes |
March 21, 2013 |
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Listing |
SME Platform of BSE |
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Rating |
Nil |
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Lead Manager |
Intensive Fiscal |
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Registrar |
Sharex Dynamic |
Unassuming Stake
While LPIL offers about 39% of its equity through the IPO, the promoters’ stake in the company would be less than 32%! Whereas the public is asked to shell out Rs 35 per share, the promoters’ average cost of holding is only between Rs 7.22 and Rs 15.24. With such a poor financial commitment, what can the investing public expect from the promoters?
As regards the company’s financials, in fiscal 2012, on a turnover Rs 7.96 cr, the company posted a meager net profit of less than Rs 7 lakhs. With such a dismal profitability, how it will service the post-issue capital of Rs 3.74 cr is anybody’s guess.
Circular Funding
There seems to be a peculiar pattern among the IPOs associated with the investment banker Intensive Fiscal. Kavita Fabrics, which went public in February 2013, had Lakhotia Polyesters as strategic ‘public investor’ holding the entire pre-issue public holding investing Rs 3.8 cr. Interestingly Rs 3.85 cr had been invested in Lakhotia Polyesters by 2010-registered Kolkota-based Sanwaria Vincomm whose background is not disclosed in the offer document. The merchant banker himself is not able to throw much light on Sanwaria’s financials. What’s more intriguing is that Sanwaria invested in Lakhotia on the same date (August 31, 2012) on which Lakhotia invested in Kavita Fabrics!
Further, around the same time, Kavita Fabrics invested around Rs 4 cr into Bonanza Capital Markets Private Ltd. Market reports reveal that Bonanza Capital offloaded a sizeable chunk of Inventure Growth shares at a rate far below the IPO price. Incidentally Inventure Growth IPO was managed by Intensive Fiscal. These dealings suggest that there is an unholy alliance among the merchant banker Intensive Fiscal, Inventure Growth, Bonanza Capital, Kavita Fabrics, Lakhotia Polyesters and Sanwaria Vincomm. Sebi, are you listening?
In fact, the present offer is the fifth IPO in as many years lead-managed by Intensive Fiscal. While the last offer, Kavita Fabrics, is currently quoted by the market maker with a marginal premium, the other three have inflicted heavy losses. The worst performer, Inventure Growth, has eclipsed more than 77% of the investment value.
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Intensive-Fiscal associated IPOs |
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ISSUER NAME |
IPO |
FV |
IPO |
CURR. |
GAIN |
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DATE |
Rs |
PRICE |
PRICE |
% |
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Gokul Refoils |
08/May/08 |
2 |
39.00 |
22.70 |
-41.7 |
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Inventure Growth |
20/Jul/11 |
10 |
29.25 |
6.65 |
-77.2 |
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Prakash Constrowell |
19/Sep/11 |
1 |
13.80 |
10.70 |
-22.4 |
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Kavita Fabrics |
20/Feb/13 |
10 |
40.00 |
40.90 |
2.2 |
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