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HT Media may take MCX to court over IPO dispute

Manojit Saha & Mehul Shah  |  Mumbai 

Alleges the commodity exchange violated agreement by not including its stake in public offer.

HT Media, publisher of the Hindustan Times newspaper, may take Multi Commodity Exchange (MCX) to court over a dispute regarding its stake not being offered for sale in the proposed initial public offer (IPO) of the commodity bourse.

The media group had purchased 163,388 shares of MCX from Edelweiss Capital for about Rs 10 crore, through a share purchase agreement (SPA) executed among Edelweiss, Financial Technologies, MCX and HT Media on March 30, 2010. These shares, bought at Rs 612 apiece, were credited in HT Media’s demat account on March 31, 2010.

  • HT Media bought 163,388 shares of MCX on March 30, 2010. Shares were credited to its account the next day
  • MCX filed DRHP on March 31, 2011, without including HT Media’s shares in its proposed IPO
  • HT Media complained to MCX, Sebi, book runners
  • Sebi cleared MCX DRHP in September without informing HT Media the reasons for overruling its objections

Simultaneously, MCX had entered into an agreement with HT Media to place advertisements worth Rs 10 crore for five years on a net billing basis in the group’s newspapers, journals, magazines, books and other media properties.

In the SPA, it was covenanted by MCX and Financial Technologies that they would use reasonable endeavours to bring an IPO of the commodity bourse within 36 months of the SPA and would include all or part of the shares held by HT Media under “offer for sale”.

However, MCX filed its draft red-herring prospectus (DRHP) with the Securities and Exchange Board of India (Sebi) on March 31 this year, after completion of the prescribed one-year lock-in period of HT Media’s shares, without including the media group’s shares in the offer, committing a breach of the SPA, according to HT Media.

“HT Media’s objections to the MCX IPO are based on the violation of the SPA, wherein MCX had made certain commitments towards HT Media that they subsequently breached. HT Media sees the action of MCX as an act of denial of the legitimate rights of a minority investor in a company,” said Dinesh Mittal, the media group’s general counsel and company secretary, in response to an email query from Business Standard. “HT Media is considering various options to redress its grievance against MCX and/or Sebi, including approaching the competent court(s) at appropriate time to entertain its claim on the matter,” he added.

“We would not like to comment on your mail,” a spokesperson for MCX said in response to an email query on objections raised by HT Media to its proposed IPO.

According to MCX's DRHP filed with Sebi, shares owned in the commodity bourse by Financial Technologies, State Bank of India, GLG Financials, Alexandra Mauritius, Corporation Bank, ICICI Lombard General Insurance and Bank of Baroda will be offered for sale in its proposed IPO.

According to Mittal, HT Media had had correspondence with MCX, book-running lead managers of the proposed IPO and Sebi, highlighting the breach of the covenants of the SPA. The media group also represented before the regulator that it pass an order directing MCX to withdraw the DRHP and re-file it after including its shares as part of "offer for sale".

MCX made the plea that since the approval of the Forward Commission (FMC) for transfer of shares in favour of HT Media was received by it after March 31, 2010, the media group's shares could not be included in the DRHP, Mittal said.

"The frivolous plea raised from MCX was denied by HT Media stating that the shares were transferred to HT Media and credited in its demat account on March 31, 2010. Moreover, in the SPA, MCX had represented and warranted to HT Media that all approvals pertaining to the transaction had been obtained on the date of transfer of shares, i.e. March 31, 2010," Mittal said.

According to MCX's DRHP, it had received FMC's letter dated April 1, 2010, approving the transfer of 163,398 shares from Edelweiss to HT Media.

HT Media told Sebi that in case its plea was not accepted, the grounds of refusal should be communicated to it. However, the regulator cleared MCX’s DRHP in September, which did not include HT Media's shares, without communicating to the media group any reasons for overruling the points raised by it, Mittal said.

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First Published: Thu, November 03 2011. 00:05 IST