Proxy advisory firm IiAS on Friday urged Securities and Exchange Board of India (Sebi) to investigate into the decision to cancel the preferential allotment of compulsory convertible debentures (CCDs) by the management construction firm Vascon which led to a 33% reduction in its share prices. Consequently, the shareholders are expected to have lost investments worth Rs 300 crore.
In April the Pune-based construction company had made an announcement regarding the preferential allotment of compulsory convertible debentures to Manan Finserv and Vinca Rosea Firms and Properties. According to IiAS, a preferential issue in a listed company, once agreed upon between a company and the investor, is only subject to shareholder approval (and stock exchanges confirming that they will list). Once shareholders have accepted the offer, the consideration has to be received.
“They cannot cancel the transaction as they have an obligation to fulfil terms for which it sought shareholder approval. If an investor has decided to back down, the company needs to pursue legal remedy. It cannot say the management and the investor are in agreement and the company will not to go ahead with the allotment,” explained the firm in a note published on the issue.
Since retail investors have lost money consequent to the fall in the share price of the company, IiAS has asked Sebi to launch an investigation into whether this was a genuine transaction or was this a change of control in the guise of a financial transaction investor or was this a sham transaction with an eye on the market?
The proxy firm in its note on the development has asked questions regarding the management’s authority to cancel a transaction which was subject only to approval by shareholders, and was duly approved by management.
You may also like to watch this video
“Due to certain differences between the company and the proposed investors both parties have decided to terminate the arrangement. Consequently, the company has cancelled the proposed preferential allotment of CCDs to the proposed investors,” said Vascon in a filing to the stock exchanges.