The Securities and Exchange Board of India (SEBI) has issued JM Financial an administrative warning over regulatory non-compliance during the initial public offering (IPO) of its client, Western Carrier (India).
Shares of the investment banking firm erased their earlier gains, falling 2.3% to close at Rs 129.90 on the NSE after it informed the stock exchanges about the SEBI letter on Friday.
In its letter, the markets regulator observed that the board of directors had approved the increase in authorised share capital on September 15, while the customised logistics solution company’s public issue was already open for subscription from September 13.
Further, the shareholders’ approval was taken on September 16 in an extraordinary general meeting (EGM). Ideally, both the approvals for incremental authorised share capital should have been taken prior to opening of the issue and not after, SEBI said.
JM Financial and Kotak Mahindra Capital were the book-running lead managers (BLRMs) to the public issue.
“The facts and circumstances of the case indicates that the BRLMs have failed to exercise due diligence since the shortfall in authorised share capital of the company came to the notice only after opening of the issue for subscription and the approvals for incremental authorised share capital were taken thereafter,” the regulator said in the letter dated January 1.
“The above non-compliances have been viewed very seriously. The BRLMs are, therefore, advised to be careful in the future and improve their compliance standards to avoid a recurrence of such instances, failing which action may be initiated,” SEBI warned.
The public offer of Western Carrier before it was opened for subscription consisted of a fresh issue of shares up to Rs 400 crore and an offer for sale of up to 540,000 equity shares.
The lapse in regulatory compliance came to light when the lead managers, through an email on September 17, requested SEBI to upload an addendum to the red herring draft prospectus (DRHP) on the regulator’s website.