Usage of IPO money under lens

Govt, Sebi To Look At Initial Public Offers Between 2004 And 2007


ToI 2/2/09


The Satyam scam has sent the government and capital market regulator on an overdrive against possible ‘fraudulent siphoning’ or diversion of funds as they are now scrutinising the usage of money raised by companies through initial public offers (IPOs) between 2004 and 2007.


According to official sources, the ministry of corporate affairs and Sebi are carrying out the mammoth exercise to check whether any fund raised through IPOs has been siphoned off for purposes other than stated in the prospectus.


Sources, however, clarified that the intention of government and Sebi is “not to engage in a witchhunt” and the exercise is in no way a knee-jerk reaction to the Satyam scandal. “The intention is not to hound the corporate sector, but to ensure that the funds raised are being used for purposes stated,” sources said.


The exercise assumes significance considering that about Rs 45,000 crore was raised in 2007 alone. If taken from 2004, the amount would be much higher. The markets were enjoying a bull run in this period and there were some major public issues which had hit the streets that time, including Reliance Petroleum, TCS, Patni Computers, Biocon, NDTV, IndiaBulls, Jet Airways, Suzlon, Reliance Communication, Sun TV and DLF.


Sources said the RoC (registrar of companies) would look into the annual filings and records of companies to check any violations or fraudulent diversion of funds. “The statements would be scrutinised and if some discrepancy is found, the companies would be asked to provide further details and an inquiry can be initiated,” the sources added. It is believed that real estate companies could figure prominently in this exercise. While Sebi will look at the quarterly filings of the companies, the RoC would look at annual filings like balance sheets and other financial documents for the purpose. However, officials clarified that the government would take a considerate view on companies that have postponed some of the planned investments due tothe economic slowdown.


“Our eyebrows are raised only when we suspect a fraudulent diversion or siphoning of funds. However, we are also aware that the economic slowdown and the recession may have prompted some companies to delay or postpone deployment of funds raised. This will not be classified as fraud,” sources said.


Experts, however, doubt the effectiveness of such an exercise in establishing fund diversion by companies just on the basis of statutory filings. “It is not very easy to establish such kind of fraudulent activities as companies many-atimes make vague statements that ‘funds have been utilised for purposes mentioned’ or may camouflage it in legal jargon. Thus, a lot of investigation is required to detect such frauds which may not always happen,” an expert on regulatory matters said.


This is not the first step initiated by the corporate affairs ministry against possible fraudulent activities. The ministry had cracked a whip against vanishing companies as part of its drive to safeguard interest of investors and had booked many of the fly-bynight operators. New e-governance programmes like MCA21 are also an important tool in the hands of the government to track down such companies.

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