AstraZeneca India delisting under Sebi lens for cheating investors

Market regulator Securities and Exchange Board of India (Sebi) has directed the stock exchanges to closely monitor the aberrations in the delisting process of Astrazeneca Pharma India Ltd and allow the final delisting of its shares only after satisfying themselves that the process has been fair and transparent.

Based on available reports with Sebi, it was observed that the delisting process of Astra Zeneca Pharma India Ltd (AZIPL) was carried out with active support from the Elliot Group, a Sebi-registered foreign financial institution and its sub-accounts who acted in concert to corner over 15 per cent equity shares in AZPIL, in a deliberate attempt to subsequently get the shares of AZPIL delisted at ease.

Sebi has asked the stock exchanges to promptly report any aberrations noticed in the delisting process of Astra Zeneca Pharma India Ltd.

''The promoters of Astrazeneca Pharma India Ltd shall finally purchase shares from public shareholders in the delisting offer only after seeking approval of the Bombay Stock Exchange Limited and National Stock Exchange Limited,'' the Sebi order stated.

With more than 94 per cent of total shares offered through OFS subscribed by six foreign institutional investors (FII) at prices of around Rs620 per share against the ruling market price of Rs805 per share, Sebi noted, the offer for sale (OFS) of the shares of AZPIL carried out by its promoter AstraZeneca Pharmaceuticals AB Sweden (AZP AB) on 26 May 2013 was a deliberate attempt to subsequently get the shares of AZPIL delisted at ease.

The floor price of the OFS was kept at Rs490 against the previous day's closing price of Rs805.3, while the bids were made at around Rs620 per share. The offer was, however, oversubscribed 2.84 times at an average price of Rs625.35, which was Rs179.95 lower than the previous day's closing price.

This facilitated the Elliott group to mop up almost all the shares (ie, 94.02 per cent) offered in OFS or 15.2 per cent of the total equity of AZIPL.

Out of the total 37,49,950 shares offered for sale, 35,25,773 (ie, 94.02 per cent of total shares offered by AZP AB through the OFS were allocated to six FIIs and their sub-accounts, including  DB International Asia Limited, Suffolk (Mauritius) Limited, Morgan Stanley Asia (Singapore) PTE, BNP Paribas Arbitrage, Mansfield (Mauritius) Limited, Merrill Lynch Capital Markets Espana SA, Elliott Associates LP, Elliott International, LLP, at price varying from Rs620 to Rs628 per share.

Elliott Advisors (HK) Ltd (SEBI registered FII) provides management service to two end subscribers, viz, Elliott International LP and Elliott Associates LP through Elliott Management Corporation.

From the information provided by Elliott Advisors (HK) Ltd, it was found that Suffolk (Mauritius) Limited (Sebi registered sub-account) is indirectly wholly owned by Elliott International LP; Mansfield (Mauritius) Limited (Sebi registered sub-account) is indirectly wholly owned by Elliott Advisors LP; The Liverpool Limited Partnership is wholly owned by Elliott Associates, LP.

Based on these facts, Sebi observed that prima facie all these end subscribers (participatory note holder and sub-accounts) are related, (hereinafter collectively referred to as the 'Elliott group').

On examination of bid placement pattern of the Elliott group in the OFS book building, it was observed that all these FIIs and their sub-accounts initially placed a minimal bid quantity of around 600-700 shares between 10:40 am to 12:18 pm.

All the orders were placed around the floor price of Rs490. Further, all the FIIs modified the bid order in the last few minutes of market closing to a price much higher than the floor price and the indicative price prevalent at that point in time, SEBI stated.

The OFS was oversubscribed 2.84 times, still 94.02 per cent of shares in OFS were allocated to the Elliott group. It is also noted that prior to the date of OFS, none of the entities of Elliott group had comparable previous exposure in the scrip of AZPIL nor did they hold any shares of AZPIL.

Post OFS, the Elliott Group has further purchased 3,54,196 shares of AZPIL through open market transactions. Thus, as on 31 March 2014, Elliott group has interest in total 38,79,969 shares (ie, 15.52 per cent of equity share capital of AZPIL).

From the voting pattern available with the stock exchanges and depositories, it is noted that of the total 13,02,560 votes cast in favour of delisting, 11,45,963 votes (ie, 76.1 per cent of the total votes cast and 87.97 per cent of total votes cast in favour of delisting) were cast by the two entities of Elliott group, viz, Suffolk (Mauritius) Limited and Mansfield (Mauritius) Limited who held equity shares with voting rights in AZPIL. Thus, the entire voting rights of Elliott group were exercised in favour of the delisting proposal.

From such voting pattern it may be seen that the present delisting would not have been through without favourable voting by the Elliott group.

If the suspected concerted / co-ordinated action of AZP AB and Elliott group is found true then their conduct may amount to contravention of Sebi (Prohibition of Fraudulent and Unfair Practice Relating to Securities Market) Regulations, 2003.

AZP AB had made two unsuccessful attempts to delist the shares of AZPIL. In 2004, the delisting could not be completed successfully as the delisting price (Rs3,000 per share) discovered through reverse book building process was not acceptable to AZP AB. Again, in 2010, the delisting proposal of AZP AB was not approved by shareholders of AZPIL.

As of 31 March 2013, AZP AB held 89.99 per cent of equity share capital of AZPIL. In order to comply with Minimum Public Shareholding Norms stipulated in the Securities Contracts ( Regulation) Rules, 1957, on 28 May 2013, AZP AB carried out OFS of 37,49,950 shares (ie, 14.99 per cent of equity share capital of AZPIL). BSE was the designated exchange for OFS. ICICI Securities was appointed as seller broker to the OFS.

ICICI Securities had carried out more than 60 road shows with prospective investors ahead of the OFS.

It should be noted that the buy-back was carried out at Rs625 per share although on two previous trading days, ie, 24 May 2013 and 27 May 2013, the price of the scrip on NSE closed at Rs694.05 and Rs805.3, respectively.

Sebi said it would take appropriate measures in order to protect the interest of the retail investors in the delisting process, which is already on and has directed the Bombay Stock Exchange Limited and National Stock Exchange Limited to closely monitor the entire delisting process of Astra Zeneca Pharma India Ltd and allow the final delisting of its shares only after satisfying themselves that the process has been fair and transparent.

The stock exchanges have also been asked to promptly report any aberrations noticed in the delisting process of Astrazeneca Pharma India Ltd to Sebi.

Promoters of Astrazeneca Pharma India Ltd have been barred from any further purchase of shares from public shareholders without the approval of the Bombay Stock Exchange Limited and National Stock Exchange Limited.