The Securities and Exchange Board of India (Sebi) has stumbled upon some vital clues pointing towards the involvement of foreign institutional investors in the alleged price hammering of the SBI stock ahead of its GDR offering.
Sebi, which has been probing the price hammering, has already gathered data from one leading financial institutional investors and has got some fresh leads which would aid its investigations, sources confirmed. The Securities and Exchange Board of India s report is expected to be ready in a few months.
The involvement of some key foreign institutional investors (FIIs) in the price hammering have done the rounds. In recent weeks, however, Sebi officials are understood to have met Jardine Fleming officials and sought key details on the issue, based on the records available with them.
While Jardine Fleming officials declined to comment on the issue, data available with the market regulator reveal the following:
The Jardine Fleming investment banking division was a net buyer of the stock during the period prior to the launch of the SBI GDR.
The total percentage of business carried out by the Jardine Fleming AMC was just under 2 per cent of the total business transacted in the stock in that period. Market circles said nearly 15 million shares were sold on the domestic markets in just two weeks.
The data also reveal that sales were driven by `redemption pressures. Sources said seven to eight Indian funds faced redemption pressures at that moment and Jardine Flemings Hong Kong-based investment management arm was an independent venture, which has no direct interaction with any of JFs asset management, brokerage or investment banking arm.
The data showed that the broker who did most of the deals in the SBI stock in that period, and this pointed to anothe rfinancial institutional investors brokerage firm and not Jardine Fleming.
The SBI GDR had witnessed sharp selling pressure prior to the GDR launch, with the stock price dipping by 13.56 per cent between September 10 and the GDR launch on October 4, 1996. The SBI stock fell from Rs 276.5 to Rs 239 on the day of the launch. The GDR, which was priced at $14.15, moved up after the launch to $14.5-14.7.
The Sebi brass remains tight-lipped over the line of investigations, stating that any revelations at this stage would hamper the investigations. It is yet to be ascertained whether the scope of investigations would be widened further to other FIIs.
Financial institutional investors sources said the trend of price hammering prior to the launch of a GDR issue is not a phenomena peculiar to the Indian markets. It is a market practice and cannot be stopped, a source at a UK-based investment bank said.
The rationale of the financial institutional investors is that after the offering, they would prefer to pick up a GDR as it is a cleaner instrument with no risks of bad delivery.
