AstraZeneca, Elliot Group, ICICI Securities And A Slap On The Wrist
After a six-year-long investigation, the market regulator has concluded that Swedish promoters of AstraZeneca Pharma India Ltd. and Elliott Group colluded to influence the delisting price of the former. Though the Securities and Exchange Board of India concluded that there was a “meeting of minds” between the two prior to the delisting announcement, no penalty was imposed on them.
Experts said the order is peculiar because the market regulator chose to merely warn the parties despite adequate provisions in the delisting regulations and the SEBI Act to impose a penalty.
SEBI’s order is much delayed and the quantum of censure is too meek, Shriram Subramanian, managing director at the proxy advisory firm Ingovern Research Services, said.
In 2013, AstraZeneca’s promoters had pared their shareholding from 89.9% to 75% to comply with the minimum public shareholding norms. A consortium of seven foreign entities had purchased a major chunk of the stake offloaded through an offer for sale.
A year later, came the delisting announcement. After two failed attempts earlier, this was the third time the pharma major’s Swedish promoters tried to delist its Indian operations.
In its recent order, SEBI strongly censured the Swedish promoters of AstraZeneca for its private arrangement with certain portfolio investors, who participated in the offer for sale, to seek completion of its delisting process in 2014.
Elliott Group had acquired 14.10% of the stake offloaded by AstraZeneca’s Swedish promoters through offer for sale. It subsequently purchased an additional 1.42% shares from the open market.
On complaints by certain investors and media reports, SEBI initiated an investigation. Meanwhile, the company’s third attempt to delist failed due to a slew of petitions filed by its minority shareholders in the Bombay High Court and Securities Appellate Tribunal.
But the market regulator’s investigation continued. Last week, based on email correspondence, including with the merchant bank, discussions and negotiations between the parties, SEBI concluded that the scheme adopted by the promoters was to defraud the investors and circumvent the normal price discovery process in the delisting mechanism.
SEBI found no evidence to indicate that Elliot Group’s acquisition of 14.10% shares in AstraZeneca during the first phase of the offer for sale was done only with an intent to ensure successful delisting. However, what caught the regulator’s eye was the additional purchase of 1.42% shares by two other Elliot Group entities through open market via participatory notes which increased the group’s collective shareholding beyond 15%.
This move, according to the regulator, indicated the Elliot Group’s motive to play a decisive role in supporting the delisting of shares and affect its pricing.
And so, the regulator cautioned AstraZeneca’s promoters and the Elliot group entities against indulging in unfair trade practices which are detrimental to shareholders. It has also directed them to follow the securities law and directed the stock exchanges to monitor any future delisting proposal by the company.
SEBI has concluded that the conduct of the parties was “self effacing” without any consideration of the commercial interest of the retail investors, Subramanian said. Considering this, there should have at least been a hefty monetary fine to deter such practices by others in future, he said.
Explaining the possible rationale behind the order, Juhi Singh, partner at S&R Associates, said SEBI did not impose any monetary or other penalties against the parties as the proposed delisting had not taken place and their actions had not resulted in any injury to the minority shareholders of the Indian listed company.
It’s not just the promoters and the Elliot Group who’ve been let off with a slap on the wrist.
During its investigation, SEBI noted several emails that showed the merchant bank, ICICI Securities, was aware of the delisting price negotiations between the promoters and Elliot Group.
“...vide e-mail dated Sept. 11, 2013, ICICI indicated to Ian Brimicombe (AstraZeneca Pharmaceuticals AB Sweden) that the exact price would be determined closer to the delisting process depending on the then prevailing market conditions and ‘outcome of negotiations’...”
But it hasn’t commented on ICICI Securities’ involvement in the promoters and Elliot Group arriving at a ‘negotiated deal’ that may be acceptable to the latter. To be clear, ICICI Securities was not a noticee in this case and SEBI has stated that ascribing illegality to the internal workings, deliberations and communication with a merchant banker to ascertain feasibility of the delisting may not be inappropriate.
It’s not clear whether SEBI intends to investigate in detail the role of the merchant banker in this case, Hetal Dalal, president at Institutional Investment Advisory Services, told BloombergQuint.
While the regulator has relied on certain email exchanges involving ICICI Securities, it has chosen to remain silent on the merchant banker’s role. SEBI must articulate its position on the role of intermediaries in such situations, which will provide clarity to market participants on the regulator’s approach.Hetal Dalal, President, IiAS
According to Subramanian, the merchant bank should have been diligent and red flagged it and not allowed such a practice.