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Heavy selling in shares of Jaiprakash Associates, sparked by a stake sale by a promoter, continued on Friday, with the stock taking a knock of 35% in two days and giving up more than Rs 2,800 crore in market capitalisation.
Shares of JP Associates closed at Rs 33.8, down Rs 3.90, or 10.34%, while other group firm Jaypee Infratech ended 7.2% lower at Rs 26.95.
The sharp sell-off in the JP group firms was triggered by group company Jaypee Infra Ventures' disposal of 13 million shares (1.45%) at around Rs 45 in the JP Associates through block trades between September 1 and 3.
Market players said investors did take the stake sale by the promoter entity, within months of the company raising nearly Rs 1,500 crore from investors at Rs 70 per share, kindly.
Efforts by the company to soothe nerves made little difference.
Proxy advisory firms said the promoter shouldn't have sold shares in the market in less than two months of the qualified institutional placement (QIP).
"Such a transaction was bound to have upset the investors. The company should have been upfront about the likelihood of a future share sale. JP group should have kept enough time between the QIP and share sale, this could have prevented such a reaction from investors," said Amit Tandon, managing director of IiAS, a proxy advisory firm.
Debt-heavy JP Associates in a statement on Thursday had said that the promoter entity had reduced its holding from 29.75% to 28.3% "to meet its requirement of funds including for social cause."
"JP Associates' has the reputation of being one of the most highly leveraged groups. Investors should be cautious while investing in companies that have a reputation of having high debt on their books," said Shriram Subramanian, MD, InGovern, a proxy advisory.
Brokerage firm Goldman Sachs said that it was concerned about JP Associates' high debt levels.
"We remain concerned about JPA's high leverage, with 4.5 times consolidated net debt to equity and 0.7 times interest coverage as of end-March. We will wait for JPA's FY14 annual report for more details on this. We will also continue to wait for further clarity on the SC's decision regarding the potential de-allocation of coal blocks and its impact on the entire power industry, as well as JPA's power and cement business," said Goldman analysts duo Pulkit Patni and Mohit Soni in a client note.
Meanwhile, JP Associates is said to have told analysts that the company is in the process of refinancing portion of its debt and is also doing due diligence for disposing three hydro assets. It further clarified that the company has been paying employee wages on time.
Meanwhile, stock exchange and regulatory officials said that they have increased vigil for JP group stocks following the sharp sell-off.
