SEBI scanning misuse of IPO funds; action likely soon

The Securities and Exchange Board of India is investigating initial public offerings (IPOs) where the shares of companies have shown sharp movements shortly after their listing on the bourses and is likely to initiate action in this regard soon, according to reports citing SEBI sources.

Some recently-listed companies, merchant bankers and stock brokers are under the scanner for the alleged misuse of initial public offering proceeds and price manipulation after their debut on the bourses. SEBI is investigating whether these companies have side-stepped rules to use IPO funds for other purposes.

The regulator is also inspecting the role of some brokers in stock price movements soon after listing while examining whether merchant bankers to these IPOs followed the due-diligence process while making the issue prospectus.

According to reports, the regulator questioned companies including Brooks Laboratories, Taksheel Solutions and Bharatiya Global, and merchant bankers including D&A Financial Services and PNB Investments. Most of these companies had floated their IPOs a few months ago.

The regulator is said to have found instances of 'non-disclosure and diversion of IPO funds' by some companies for purposes not permitted under the rules.

In case a company doesn't plan to use the issue money immediately for the purpose mentioned in the prospectus, it is only allowed to invest in liquid instruments, including money market mutual funds and deposits with banks, with the approval of the board.