SEBI Issues Interim Order Following Investigation into NCDs Public Issue, Citing Concerns Over Subscription Management.
SEBI’s recent interim directive, issued on March 7, allows JM Financial to retain its role as a lead manager for public debt securities offerings for a limited 60-day period starting from the Order’s date. The regulatory body emphasized that its observations, outlined in the directive, are grounded in available evidence, and it aims to conclude its investigation within six months.
This regulatory action stems from SEBI’s routine scrutiny of non-convertible debenture (NCD) public issuances in 2023. The investigation focused on the involvement of three entities: the parent company and merchant banker, JM Financial Limited; its wholly owned subsidiary and broker, JM Financial Services; and its subsidiary, a non-banking financial corporation (NBFC), JM Financial Products Limited, in a specific debt issuance.
The scrutinized debt issuance, which marked the debut tranche of NCDs issued under a shelf prospectus dated October 16, 2023, initially amounted to Rs. 200 Crore, with a green shoe option of Rs. 800 Crore.
In its interim order, SEBI highlighted concerns over the “shocking” management of subscriptions during the public debt offering. The order expressed reservations that transactions at each stage of the issuance appeared to be carefully orchestrated in a “pre-determined and pre-meditated manner,” executed meticulously to ensure the success of the subscription process.
According to the order, “The scheme, as noted on a prima facie basis, involved enticing individual investors who might not have otherwise participated in the issue to submit applications, not only by providing them with funds but also by guaranteeing them a profitable exit on the listing day.”
The order further stated, “An investor seeking financing to apply in a public issue of securities aims to profit from trading based on the price movement of the security after listing. However, considering the interest charged by the lender on such loans, a significant increase in the security’s price post-listing is necessary for these trades to be profitable.”