is GDR scam at Transgene Biotek real?

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Whiff of GDR scam at Transgene Biotek

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ANKIT DOSHI: MUMBAI, DEC 04 2012, 01:56 IST

Mumbai: A group of shareholders of Transgene Biotek has complained to the Securities and Exchange Board of India (Sebi) about a ‘GDR scam’ that the company has allegedly perpetrated on the basis of several price-sensitive announcements with an ‘ulterior motive’ of pushing up the stock price and giving an attractive exit to a select set of investors.

Shareholders of the BSE-listed company allege that the promoters of the company allotted depository receipts (using structured GDR route) to an FII/sub-account, who, in collusion with the promoters, converted the receipts into equity shares and sold them in the domestic market by creating artificial volumes.

As per the complaint filed with Sebi’s Investor Grievance cell — a copy of which is with FE — investors remonstrate the use of several price-sensitive announcements (including delisting at a much higher price than the prevailing market price) as a decoy to elevate the stock price and trap retail investors so that GDR holders can exit.

Further, investors raised doubts over the existence of Transgene Biotek HK — a subsidiary entity — and have asked Sebi to probe the fund flows between the parent and subsidiary entities.

Investors said that within a few days of incorporating the Hong Kong subsidiary, the parent company raised $17.50 million (nearly R86.5 crore) through GDRs and most of the money was remitted to the subsidiary for buying technology.

“What has happened to the technology transfer, which accounts for 25% of the size of balance sheet? Was the technology bought or were the funds given back to the ghost GDR holder?” said another investor, on conditions of anonymity. Investors have also questioned the role of GDR allottee, stream value fund (FII) and inventure merchant bankers.

“The modus operandi is similar. The trades are concentrated among a few entities, which could be fronts for GDR holders. The question is where and how much of the money was siphoned off?” the investor asked.

Incidentally, the auditors of the Hyderabad-based company highlighted a similar point in the FY12 annual report. It said the company does not have an internal audit system commensurate with its size and nature of its business, and that it was in no position to comment on the end use of money raised via GDRs as the utilisation proceeds from these GDRs were made through its wholly-owned subsidiary, which was not audited by the auditor, stated the FY12 annual report.

Meanwhile, several email queries sent to the company remained unanswered till the time of going to press. Repeated attempts to get in touch with the management and the registrar also proved futile.

Market participants, meanwhile, feel that the regulator should tighten the regulations on GDR issuances by Indian companies. Ashok Bakliwal, president, Bombay Shareholders' Association said, “It becomes incumbent on the part of Sebi to investigate this matter and take strong action. Sebi cannot always rely on official complaints to initiate an investigation. It needs to take suo moto action and must have a strong surveillance system in place.”

Shares of Transgene gained 1.98% on Monday to close at Rs 4.63. The scrip has plunged nearly 70% since the highs of September when the merchant banker was appointed to manage the delisting offer.

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