When will regulators wake up from slumber?

Newly-designated promoters acquire Rs 1.98 cr paid-up equity for just Rs 19.80 lakh in April 2010 and issue 9 for 1 bonus in July 2012 thereby reducing cost of holding to a negligible 10 paise per share. The promoters now sell the shares at Rs 15 each through an `offer for sale’ and BSE is facilitating its SME platform for officiating the loot!

How `fly-by-night club-class members’ use the BSE SME platform to multiply their fortune is repeatedly reported in this column for more than a year. In the absence of regulators’ alertness, the loot continues.  How blatant can be the SME loot is illustrated by Silverpoint Infratech.

This Howrah-based so called `infra-tech’ company was originally incorporated as Silverpoint Marketing in 1997. The name was changed to the present one in 2008. Though the name is Infratech, the company does not undertake any high-tech work. It is actually engaged in “providing land development, construction and other related services” through third party vendor- contractors!

Until 2010, Silverpoint’s top line was about Rs 10 cr on which it netted a profit of less than Rs 3 lakh. In fiscal 2012 revenue leapt to over Rs 230 cr but, net profit was only Rs 53 lakh against a net worth of more than Rs 40 cr. During the 11-month period up to February 2013 the company’s equity capital increased ten-fold, from Rs 1.98 cr to Rs 19.79 cr through a bumper bonus issue but, profit was stagnant around Rs 50 lakh. What’s more, net cash generated from the company’s operating activities has been negative in five out of last six years!  

Coming to the offer, twenty-eight SMEs have hit the BSE Platform during the past 17 months – all of them issued fresh shares. Silverpoint is the first to propose listing on BSE-SME through an “offer for sale”. Two existing promoter shareholders of the company viz. Saffron Vinimay Private Ltd and Shivmangal Commerial Private Ltd make a public offer of 40 lakh shares of Rs 10 each at a price of Rs 15 a piece aggregating to Rs 12 cr. While the company’s Mumbai-based merchant banker, Inventure, has underwritten only 15% of the offer (12 lakh shares or Rs 1.8 cr), a little known entity from New Delhi, 4A Securities Ltd, has committed as much as 85% (Rs 10.20 cr)!

For whose benefit the Silverpoint offer is being made? Since applications are required to be made for at least 8000 shares (Rs 1.2 lakh) ordinary investors will not be able to participate. Hence, the only motive of the offer is to carry out the sale of 80 lakh shares and achieve the benefits of listing for the promoter-shareholders. Do these promoter- shareholders deserve an exit route via BSE-SME? The offer document bares all!

The promoter-companies want to pocket Rs 12 cr through the public offer. What’s their contribution to Silverpoint?  Both Saffron Vinimay and Shivmangal Commerial got 98.71 lakh shares each for a paltry investment of Rs 9.87 lakh each in April 2010. In other words, an investment of 10 paise in 2010 is now valued Rs 15! Intriguingly, these two companies acquired their respective pre-bonus holding of 9.87 lakh shares of Rs 10 each for a price of just Re 1 from 50-odd obscure companies whose cost of acquisition was as high as Rs 200 per share! How come 52 unknown entities together decided to throw away the shares at a hefty discount of more than 99%? Why these 52 entities chose to collectively write off more than Rs 39 cr on same day (April 15, 2010)? In this backdrop, the ownership of the 52 companies and their connection with the promoters of Silverpoint is worth investigating.

It is pertinent to note here that in 2011 Taksheel Solutions made an IPO of Rs 82.50 cr of which Rs 23 cr was transferred to Silverpoint, which in turn gave Rs 11.40 cr to certain entities, viz; Snehsil Marketing, Sugam Vinimay and Anubhav Infrastructure on October 20, 2011. Another Rs 10.85 cr was reportedly given to Rosevalley Merchandise of Kolkata. Later, SEBI’s investigation revealed that these entities had directly or indirectly indulged in trading of Taksheel shares! If this is the reputation of Silverpoint, how its stock is being allowed to be listed on the BSE without proper vetting of the disclosures made in the offer document? Moreover, what can one expect from a company whose core individual promoters’ stake is less than 0.2%, whose registered office has been changed as many as 5 times in 14 years, and who has had three auditors in as many years?