N Sundaresha Subramanian

Mumbai: The Securities and Exchange Board of India, under the new chairman, has sharper teeth.

It bites more than it barks. Ask the merchant bankers.

The stock market regulator has given an ultimatum to the merchant bankers of the Oil and Natural Gas Corporation Ltd’s (ONGC) four-year-old offer for sale that they resolve the issue of pending refund orders, immediately.

Sources close to the development said the regulator has taken a serious view of the issue and warned the merchant bankers of serious consequences (revocation of licence), if the investors’ dues are not settled without further delay.

The ONGC offer for sale hit the market in the fag end of March 2004. The then biggest public offer mobilised in excess of Rs 10,000 crore for a 10% stake sale. As per the offer document of the issuer, the unallotted subscription money was to be refunded to the applicants within 15 working days of offer closure. That period ended on April 5, 2004.

Four years on, a huge number of applicants are yet to get their money back.

The issuer ONGC — by logical extension — the government, the merchant bankers DSP Merrill Lynch, JM Morgan Stanley and Kotak Mahindra Capital and the registry MCS have been passing the buck over the past four years.

The source said the chairman was appaled when he discovered that thousands of complaints received by the Sebi’s investor grievances cell were pertaining to the ONGC issue and precious little has been done over the years. He reportedly told the merchant bankers at a recent meeting that it is for them (merchant bankers and the issuers) to decide who will take the hit. But, the investors should not be made to wait any longer.

Two of the three investment bankers were evasive when DNA Money approached them for comments on the issue. The third one had this to say: Atul Mehra of JM Financial said, “It’s a complicated matter. I am neither denying nor confirming this. You can go ahead and write whatever you want.”

Atul Mehra and JM Financial were part of the erstwhile JM Morgan Stanley, which was one of the three book running lead managers to the issue. Morgan Stanley has since bought out JM’s stake in the venture.

CB Bhave, the Sebi chairman, gave a hint of this development at a ceremony to inaugurate an investor education effort at NSE on Friday.

Explaining how interaction with the investing public is an important tool in a regulator’s kitty, he said the huge number of complaints received in the IPO allotment and refund orders had prompted him to look at systemic changes in the IPO process.

“We are making several efforts. Hopefully, we will see the results soon,” the chairman said in Hindi. He also gave a historic perspective how complaints and interactions with the public have helped Sebi improve the system.

“In 1990-91, when Sebi started functioning, it did not have much powers. We asked people to write to us whatever grievances they had with us. While people ridiculed us saying it was a waste of time, the process helped us in categorising these complaints,” Bhave said.

By 1994, About 6 lakh complaints had been received by the Sebi. An analysis of these 6 lakh complaints showed that an overwhelming majority, 70,000-80,000 complaints, were pertaining to loss of share certificates, non receipt of refunds after surrendering the certificates etc.

This large area of complaints was addressed via dematerialisation, which Bhave himself later oversaw as the chairman of NSDL in 1996-97.

“Two way traffic rehna chahiye,” he said underlining the importance of public response in bringing about systemic changes.

Sebi has, in the last two months, announced various proposals from reducing the IPO timeline to a technological solution by banks to freeze the application money in investors’ account till allotment.

These steps may take a while to see the light of the day, but even going by the existing standards, the affairs of the ONGC issue are messy, to say the least. Observers say Arun Shourie, the then disinvestment minister, had a target to meet by March 31, 2004 and the ONGC issue was rushed to hit the bourses on March 29.

March 2004, saw a clubbing of four big IPOs and the registry to the issue MCS, which was handling these issues,was unable handle the mountain-load of applications. As a result, the allotment process turned messy. Thousands of investors neither received the shares nor the refund of application money, they had submitted.

The Hindu Business Line dated April 11, 2004 reported, “What has happened in the fiasco of the ONGC public offer allotment where some shareholders have been erroneously allotted shares more than what they were entitled to, while others have neither received shares nor their refund orders till date.While some high net worth individuals (HNI) have received more than what they had bid for, some retail investors have been allotted less.”

The problem was further complicated as investors who were allotted shares erroneously sold them on date of listing. But since they did not receive those shares physically they were penalised by exchanges as they had to settle them through auction at higher prices.

Source : DNA