IIFL Finance in a spot over open offer breach, firm says error in reporting

Stock hits upper limit after regulatory filing shows promoter holding in the company had breached the 25% threshold following an open market purchase by chairman and CEO Nirmal Jain

IIFL Finance stock hit upper limit on Thursday after a regulatory filing showed the promoter holding in the company had breached the 25 per cent threshold following an open market purchase by chairman and chief executive officer (CEO) Nirmal Jain.

Confusion reigned as the company in a stock exchange filing said, “This is to clarify that the promoter group's voting rights in the company has not exceeded 25 per cent and promoter group has no intent to acquire more than 25 per cent voting rights in the company or make any public offer.”

However, a filing on June 24 by the company showed that the total promoter holding in the company had inched up from 24.94 per cent to 25.06 per cent following acquisition of 0.12 per cent stake from the open market on Wednesday by Jain.

IIFL Finance made another regulatory filing on June 25, which showed promoter entity Ardent Impex had sold 0.07 per cent stake on Thursday. The latest filing showed the combined promoter shareholding was 24.99 per cent, slightly below the open offer trigger of 25 per cent.

The market was abuzz that the open offer was triggered as the acquisition by Jain took place on Wednesday, which took the shareholding beyond 25 per cent and the selling by Ardent happened on Thursday.

Jain said there is no breach of the limit as the selling by Ardent took place before the shares reflect in its dematerialised (demat) account.

 

“There has been a technical error in reporting, which was later corrected. The promoter shareholding is below the open offer trigger of 25 per cent. I have acquired the shares and before the shares come into my demat account, another promoter entity has sold. So technically, the voting right hasn’t crossed 25 per cent and hence, there won’t be any open offer,” Jain told Business Standard.

In the Indian market a trade is settled on a T+2 basis—two days after buying or selling on the exchange platform.

“…percentage voting rights had been computed on the basis of an expected delivery of shares which is yet to take place. Prior to delivery and acquisition of the voting rights, the sale of shares covered by this intimation has been effected and the shares have been delivered. As such, the 25 per cent threshold was never actually crossed,” said IIFL in a regulatory filing on Thursday.

JN Gupta, founder of SES, a proxy advisory firm said if one goes by the law there shareholding has not been breached. “While the rules are not clear on this. I don’t think it is a breach. Had it seen the same entity buying and selling one could have argued. However, these are two different entities and the shares are not yet reflected in the account.”

Experts believe the rules need to clarify as to what should be the point of reference—actual acquisition or credit to the demat account. They said market regulator Sebi will have to decide on this issue.

Shares of IIFL Finance ended at Rs 82.2, valuing the company at Rs 3,110 crore. A 26 per cent open offer would entail an outgo of about Rs 800 crore at current market price. Shares of other IIFL group companies also rallied on Thursday. IIFL Wealth soared 8.8 per cent, IIFL Securities surged 20 per cent and 5Paisa Capital rose 15.5 per cent.