CG Power case delays Aditya Birla Sun Life's IPO by at least 3 months

Sebi has put initial offer in abeyance due to pending inquiry against group firm

Aditya Birla Sun Life Asset Management Company’s (Birla AMC) plan to go public has been delayed by at least three months because of a pending enquiry against group firm Aditya Birla Finance in the CG Power and Industrial Solutions matter, regulatory sources told Business Standard. 

Sebi had in June issued a show-cause notice to Aditya Birla Finance, seeking explanation on its financial dealings with Gautam Thapar-led CG Power, said two regulatory sources.

A week ago, a disclosure on market regulator Securities and Exchange Board of India’s (Sebi’s) website on IPO processing status showed that Birla AMC’s IPO had been kept in abeyance. 

Explaining the matter, the sources said that a draft prospectus for sale of securities is kept in abeyance whenever there is a probable investigation or an ongoing probe against entities involving the promoter group.

A similar approach will be taken in cases where show-cause notices have been issued to the entities proposing a share sale or where proceedings have been initiated.

Also, if there is an ongoing case against a company and its group entity has filed a draft red herring prospectus (DRHP), then the company will not get approval for 90 days, which could be extended by another 45 days, said one of the two sources. “We call it cooling-off period, and during the period the matter is expected to reach a logical conclusion,” one of the two sources explained. 

Without divulging details of the case, sources said Sebi is looking into usage of money that was lent by Aditya Birla Finance to one of the special purpose vehicles of CG Power. “If required, the regulator could take help from other federal agencies that are probing CG Power loan default case,” one of the sources said. 

An email sent to Aditya Birla AMC on Wednesday went unanswered. 

Thapar and CG Power are currently facing a probe by the Central Bureau of Investigation (CBI) for alleged bank fraud of Rs 2,435 crore, following a complaint by the State Bank of India. The federal agency had last week registered a first information report against Thapar and others and also carried out massive search operations. 

Typically, Sebi takes 30 days to process a draft offer document and communicates its observations to the company, which is supposed to incorporate them in the offer document. 

Citing Sebi’s February 2020 general order, a source said a draft offer paper can be also delayed where the entities concerned have not complied with any of the regulator’s directions, including disgorgement of illegal gains.

The order formalises the issuance of observations on draft offer documents filed with Sebi, where an investigation, enquiry, adjudication, prosecution, disgorgement, recovery or other regulatory action is pending against the issuer or its promoters, directors or group companies.

With respect to cases where show-cause notices have been issued to entities in an adjudication proceeding, Sebi can process the draft offer paper and issue observations. 

This is done on the condition that the entities concerned make necessary disclosures and statements in respect of such proceedings and the possible adverse impact of an order on the entities, in the offer document.

Last year, Sebi had conducted a forensic audit of CG Power where it highlighted certain discrepancies in the books and also pointed out collusion between some of its lenders and the erstwhile management led by former chairman Gautam Thapar.

CG Power came under Sebi scanner in 2018-19 and the regulator had in September 2019 passed an interim order against certain officials of the erstwhile promoter group and directors of CG Power, including Thapar. 

The order pointed out nine transactions that according to the regulator were designed to divert/siphon off money from CG Power. The total amount of alleged fund diversion was pegged at Rs 3,000 crore.