The SEBI headquarters in Mumbai. (Photographer: Santosh Verma)

Why Mehul Choksi’s Nakshatra World IPO Didn’t Launch

The initial public offering of Nakshatra World Ltd., a subsidiary of Mehul Choksi’s Gitanjali Gems Ltd., didn’t take place as the merchant bankers failed to submit disclosures sought by the market regulator, a senior SEBI official told BloombergQuint on condition of anonymity.

The offer got final observations from the Securities and Exchange Board of India in June last year within three months of the application was filed, according to information on the SEBI website. SEBI’s final observations are the closest the regulator gets to approving an IPO. Any issues raised in the final observation are expected to be addressed by the issuer and its bankers before launching the issue.

The Nakshatra offer reached this final observation stage even while a five-year-old SEBI probe against Choksi and associates, for fraudulent and unfair trade practices and violation of takeover code, was ongoing. Details of the ongoing probe were disclosed in the IPO prospectus at the time.

Around the time the prospectus was filed, in March 2017, S Raman, wholetime director of SEBI, also ordered a full investigation into alleged manipulative trading by Choksi and others in the Gitanjali Gems stock, along with violations of the takeover rules. The investigation was to be completed in six months, the order said. The earlier probe was then replaced by the one ordered by Raman, and is still on.

The IPO was managed by two merchant bankers. The book running lead managers for the issue were IDBI Capital Markets & Securities Ltd. and Elara Capital (India) Pvt Ltd., as per the draft prospectus. It is not clear what, if any, questions were raised by SEBI in its final observation on the IPO. But the issue was never launched.

IDBI Capital, the lead manager coordinating with SEBI, said in its response to BloombergQuint’s query, “Typically, the in-seriatim reply to final SEBI observations is filed at the time of submitting the updated DRHP with SEBI. Since, we did not reach that stage in this transaction, we were not required to file any replies with SEBI.”

SEBI offered no formal comment. Elara Capital and law firm to the issue, Shardul Amarchand Mangaldas, have yet to respond to BloombergQuint’s queries.

Nakshatra World, a 99.99 percent subsidiary of Choksi-promoted Gitanjali Gems, had filed its draft red herring prospectus with SEBI for fresh issue of 1.80 crore shares. The company had not disclosed the total funds it hoped to raise, but Nakshatra’s prospectus said Rs 300 crore would be used to fund working capital requirements of the company and its subsidiaries like Nakshatra Brands and GILI India. The remaining amount was to be used towards general corporate purposes.

Choksi, and billionaire jeweller Nirav Modi and their firms are accused of allegedly obtaining loans on fraudulent guarantees issued by government-owned Punjab National Bank in connivance with some of the bank’s employees. Both were not in India when news of the fraud broke and the government has suspended their passports.