Institutional Investor Advisory Services (IiAS), a proxy firm that provides voting recommendations on shareholder resolutions of listed companies, has come down heavily on the proposed IPO of private sector lender Tamilnad Mercantile Bank (TMB), asking Sebi that the IPO should be permitted only after legal tangles are resolved.
The bank has filed for its proposed IPO in which incoming shareholders will not be able to approve accounts, vote on declaration of dividend, hold the management and board accountable through their vote or take any decision, because the company is unable to hold an AGM without a court sign-off, it pointed out in a note.
The 100-year-old TMB filed the the draft red herring prospectus (DRHP) with Sebi to raise funds through an IPO in September 2021. According to the DRHP, the bank is looking to issue 1.58 crore fresh shares with face value of Rs 10 each, while existing shareholders are to offload 12,505 equity shares through an offer-for-sale.
IiAS said according to the DRHP, the bank does not have the ability to convene a shareholder meeting without the consent of the Madras High Court. “This, as the draft document states, limits (the bank’s) ability to obtain approval of (its) shareholders in a timely manner, or at all. This is the first risk factor.” it said.
The bank has been unable to hold an AGM either in 2020 or in 2021 and was not in a position to have the appointment of four of its directors regularised, obtain shareholder approval for amending its articles of association or its last two years accounts approved, owing to litigations arising out of share-transfer disputes.
IiAS said that to push a set of public and retail investors into this judicial flotsam is ill-advised. “But with 37.61% or 53.6 million shares subject to legal wranglings and held in abeyance, how do you even price for this overhang – and legal uncertainty? Be that as it may, the proposed IPO will end up dragging a new and still wider set of investors into a dispute that has been boiling for two decades,” it said.
According to IiAS, there have been other cases against the bank, its directors, its group of equity holders, including in the Supreme Court, various high courts, and a show-cause was issued by the Ministry of Corporate Affairs.