The Securities Appellate Tribunal (SAT) has dismissed the petition of Tamilnad Mercantile Bank's minority shareholders, who sought to stall the lender's upcoming IPO.
The decision clears the deck for the third initial public offering (IPO) on Dalal Street in as many weeks. Tamilnad Mercantile Bank, one of India's oldest private lenders, intends to raise Rs 832 crore through a fresh issue of shares. The IPO opens for subscription on September 5.
The IPO hit a roadblock as six minority shareholders approached the Securities Appellate Tribunal (SAT), citing concerns over the Offer For Sale portion of the IPO being scrapped. They had sought a stay on the IPO, which the tribunal has now dismissed.
Difference from DRHP
When the lender released the Draft Red Herring Prospectus (DRHP) in September last year, it mentioned that the IPO would be a mix of a fresh issue of shares and an offer for sale. However, the issue that opens on Monday is only the former.
The bank, in its offer document, has mentioned that 37.7 percent of its paid-up share capital is subject to outstanding legal proceedings initiated by agencies like the Reserve Bank of India and the Enforcement Directorate.
Run-ins with India's banking regulator:
May 2021: RBI imposes a fine of Rs 1 crore for non-compliance with certain provisions of directions issued by the regulator. The bank reported a few cybersecurity incidents to the RBI in October 2019.
October 2019: RBI imposes a penalty of Rs 35 lakh over deficiencies in regulatory compliance on the classification of frauds.
June 2019: RBI imposes restrictions on the opening of new branches.
June 2018: RBI imposes a fine of Rs 6 crore for lapses in adhering to the master directions on the issue and pricing of shares.The lender aims to open 100-150 branches in the country post its IPO and is hopeful that the central bank will lift the bank once shares go public.
ED Trouble
Tamilnad Mercantile has also had its tryst with the Enforcement Directorate attached assets worth Rs 216.4 crore of the bank's former chairman MGM Maran in April this year. The assets pertained to Maran's Chennai-based company Southern Agrifurane Industries Pvt. Ltd. Last year, the ED also seized shares worth Rs 294 crore of another former chairman N Muthu over a probe linked to his alleged violation of the FEMA law.
Market Regulator SEBI had green-lighted the IPO in June this year. Soon after the lender filed its DRHP last year, proxy advisory firm IiAS appealed to the regulator to approve the IPO only after the bank manages to resolve all of its legal issues.
"But with 37.61 percent or 53.6 million shares subject to legal wrangling and held in abeyance, how do you even price for this overhang – and legal uncertainty?" the firm wrote in its note on January 31 this year. "The problem needs to be contained, and not unleashed on the hapless investors who have a lion sitting across the path."
The note further request SEBI to not allow the IPO of a company that "cannot even convene an AGM."
In another warning within the RHP, the lender said that it has had negative cash flow in the past and may continue to have them in the future.
The IPO opens on Monday, September 5 and closes Wednesday, September 7, 2022. The bank will be selling shares within a price band of Rs 500-525 apiece.
(Edited by : Abhishek Jha)
First Published: Sept 2, 2022 1:03 PM IST
