Retail investors can make an exit

If you are a retail investor and had subscribed to the initial public offering (IPO) of Vaswani Industries, there is some good news. On Monday, the Securities and Exchange Board of India (Sebi) allowed retail investors and non-institutional investors to exit the stock. Ashika Capital, the merchant banker, was asked to give these investors 10 days to do the same. After the exit, Ashika Capital has to compute the allotment ratio again in consultation with the Bombay Stock Exchange (BSE) and publish the revised share allocation in all newspapers (where the issue was advertised earlier), along with the withdrawal option. However, investors opting to withdraw from the issue will get a little less, with a maximum of one per cent being deducted from the subscription amount as IPO expenses.

On May 13, Sebi had stopped the company’s listing, following complaints of large-scale withdrawal and rejections in the issue. They complained that certain applications were submitted to artificially inflate subscription in the qualified institutional buyer (QIB) and high net worth individual (HNI) categories, to attract and mislead investors.

The issue, through which the company was aiming to raise up to Rs 49 crore, was initially subscribed over four times. However, after the bid was closed, several investors withdrew their applications. This led to a final subscription of just 1.45 times. The price band was fixed at Rs 45-49.

The IPO saw 4,030 retail applicants bidding for 1.17 crore shares. The retail portion was subscribed 3.37 times. The HNI portion was subscribed 1.24 times. It received bids for 18.65 lakh shares and just 11 applications. The portion reserved for institutional bidders was subscribed 0.16 times, with just one applicant applying for eight lakh shares.

Since the QIB portion was not fully subscribed, retail investors and HNIs were allotted more shares. Subsequently, they approached Sebi, and, after a preliminary investigation, the market regulator stopped the listing of Vaswani Industries stock on BSE and the National Stock Exchange.

Given the allegations against the company, investors should take this opportunity to make an exit, marketmen say. Retail investors, especially, should look at the various aspects of a public issue before subscribing. These include the fundamentals, management’s quality, corporate governance and the IPO grading given by credit rating agencies.