Sebi order on IFSL, Minal share trades

The Securities and Exchange Board of India today passed its order on the suspected irregularities in the share trading of IFSL Ltd and Minal Engineering.

About IFSL, Sebi said the company, which was listed on the BSE in September 1996 as one engaged in the business of trading in securities, suddenly proposed to diversify in 2005 to an unrelated area of implementing power projects through the acquisition of a company called San-Infra Trading Pvt Ltd. Sebi said IFSL had not provided sufficient details on San Infra.

The database of the filings with the department of company affairs describes San Infra as a firm registered only in 2002 and engaged in "retail trade not classified elsewhere".

As on June 30, 2005, the shareholding pattern of IFSL showed that while the promoting company held only 17 per cent of the share capital, the non-promoter holding included a few brokerage firms, including Fortis Securities, Fortis Finvest Ltd, Prowess Financial Services Pvt Ltd, India Bulls Financial Services Ltd and K & A Securities Pvt Ltd.

There was very little trading till December 2003, when the shares were quoted in the range of Rs 10.60 to Rs 16.75, but trading took place only on 49 days. The share languished without any trading for seven months between January 2004 and August 2004.

The price thereafter leapt considerably from a range of Rs 15-18 in September, 2004, to around Rs 233 in June, 2005, during 200 trading days. The company went through a share split on July 1, 2005 when a Rs 10 share was split into Re 1 and consequently, the number of paid-up shares increased to 8 crore from 80 lakh.

The share price, which was at Rs 26.70 on July 1, 2005 after the split, rose to Rs 33.65 on September 13, 2005. Interestingly, the average daily trading volume was around 70 lakh between August 1, 2005 to August 18, 2005, which accounted for only around 10 per cent of the equity capital.

The very low turnover ratio clearly demonstrated a lack of investor interest. Then there was a spurt in the average daily trading volume to around 177 lakh from August 19, 2005 to September 13.

"What was intriguing was the coincidence of this spurt with the trading by the promoters through off-market transactions, as well as by the entities to whom they transferred nearly 12 per cent of the total share capital," a Sebi statement said.

These developments warranted an immediate probe into the dealings. The inquiry is in progress.

On Minal Engineering, the market regulator said the share price of the company had a questionable jump from Rs 4.33 on February 7, 2005, to Rs 452.35 on September 15, 2005 in 97 trading days showing a rise of 105 times. The shares were traded at or near the upper circuit limit on most of the days during this period.

While the highest trading volume of 8,403 shares were observed only on September 15, the average daily volume was only around 663 shares, against a total non-promoter holding of 1,29,000 shares. There were even a few starkly lean days when only one share was traded.

Clearly, the huge leap of 105 times took place on very thin volumes, signifying only limited investor interest and participation. More astonishing was the trading record of the shares during the past nine years, the statement said..

The shares were traded only on four days in 1996 at Rs 12. There was no trading till 1999, except on three days at Rs 7. They were traded only once in 2000, again at below par of Rs 5.4. Thereafter, the shares weakened without any trading for nearly five years between July 20, 2000 and February 06, 2005. Regular trading resumed on February 7, 2005, with 100 shares traded at Rs 4.33.

By February 22, the price rose to Rs 8.97 (more than 100 per cent) and by March 11, it jumped 481.52 per cent in 14 trading days to Rs 20.85.

This unusual movement prompted the BSE to transfer the shares to the trade-for-trade segment on February 22, and to reduce the circuit filter in the shares from 10 per cent to 5 per cent on March 11, Sebi said.