Anand Rathi wealth management arm drops IPO as group firm faces NSEL probe

Sources say that Sebi has directed the company to withdraw prospectus or face rejection

Anand Rathi Wealth Services, the wealth management arm of financial services group Anand Rathi, has dropped its plan to go public. The firm has "withdrawn" its offer document filed with market regulator Securities and Exchange Board of India (Sebi).  

While the company has cited difficult market conditions as the reason for the withdrawal, sources say Sebi was not keen on giving a green signal to the IPO due to a pending investigation in the National Spot Exchange (NSEL) matter.  

Group firm Anand Rathi Commodities is among the aggrieved brokerages in the Rs 56-billion NSEL default.

"Sebi asked Anand Rathi to reconsider its IPO plans by December 24 or face the possibility of rejection," said a person with direct knowledge of the development.

Sources say the investment banking team handling the IPO met with Sebi officials on Wednesday before taking a decision to withdraw its prospectus.

In September, Anand Rathi Wealth had filed an offer document to Sebi for its Rs 4.25-billion IPO.

Amit Rathi, MD of Anand Rathi Wealth Services, didn't answer queries sent by Business Standard pertaining to the NSEL issue. 

The company issued a statement in the latter part of the day on the IPO withdrawal.

"The business is doing extremely well and the company is witnessing unprecedented traction in its target markets. However, a large part of the IPO proceeds was in nature of offer for sale by the holding company. In light of the difficult market conditions, the group has decided to pursue other avenues to raise the requisite funds," Rathi said in a statement.

Through the IPO, Anand Rathi Wealth was aiming to raise Rs 1.25 billion through the issue of fresh shares, while parent Anand Rathi Financial Services was planning to sell shares worth up to Rs 3 billion.

Equirus Capital and Jefferies India were the investment banks handling the IPO.

Banking sources said the Sebi was not keen on approving the IPO till the pending investigation in the NSEL case was completed.

The market regulator is said to be nearing closure in the case against the top five brokers, including Anand Rathi Commodities, in the NSEL matter. The show cause notices have been served to the brokers alleging that they are no longer "fit and proper" to function as registered brokers. The regulator is expected to pass the order soon in the matter.

If the IPO wouldn't have been withdrawn, Sebi would have used the rare provision of rejecting an offer document, said a source. In 2012, Sebi framed rules to reject an offer document if it believed the safety was compromised or the quality of disclosures was inadequate or risk associated with the issue was too high. One of the provisions also says that documents of issuers would also be rejected if there were pending litigations and the issuer's survival was dependent on the outcome of such litigations. 

"Anand Rathi Commodities, one of our group companies, is involved in a proceeding with Sebi. Any adverse outcome in the matter would have an adverse effect on the brand and reputation of the Anand Rathi Group, which could have an adverse impact on our business, financial condition and results of operations," the company has said in its draft offer documents.

The rejection framework is also used if a company or a banker takes too long to respond to the queries raised by the regulator.


Why the IPO is not happening
 

• AR Wealth files draft prospectus with Sebi in September
• Plans to raise Rs 4.25 bn through public offering
• Regulator was not in the favour of IPO
• Directs company to pull back the offer document
• AR Commodities were amongst the brokerages under probe in the NSEL matter
• Sebi alleged brokerages no longer fit and proper to function as broker
• Sebi order in the matter expected soon
• AR wealth cites difficult market condition for withdrawal