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N.K. Kurup

Mumbai, Aug. 31 Broking firm Geojit Financial Services Ltd has sought SEBI’s permission to extend beyond 18 months the validity of the 2.2 crore convertible warrants issued by it to the French banking group BNP Paribas.

The validity of the warrants, issued in March 2007 as part of a preferential issue, expires on September 12, 2008.

BNP could not convert these warrants into equity following the delay in getting regulatory approvals for its acquisition in the Kochi-based retail broking firm.

If SEBI gives its approval, this would be one of the first instances where the capital market regulator is granting permission to a company to extend the maturity of its convertible warrants beyond 18 months, said an official with an investment bank.

In March 2007, Geojit had made a preferential allotment to BNP that made the French group the single largest stakeholder in the company.

The allotment included 5.6 crore shares representing 27 per cent of its equity at a price of Rs 26 a share and 2.2 crore warrants that could be converted into equal number of shares at the same price within 18 months. But the conversion, which will raise BNP’s stake to 34 per cent, is allowed only after completion of the 20 per cent mandatory open offer to shareholders of Geojit.

However, in what is seen as a regulatory hurdle, the French banking group could not get SEBI’s clearance for its open offer in time.

Since BNP is a foreign bank operating in India, SEBI had referred its proposal to RBI.

RBI held the view that since Geojit is also engaged in commodity trading, BNP as a bank operating in India cannot own that company. According to rules, banks in India are not allowed to trade in commodities and Geojit had a wholly-owned subsidiary doing futures trading in commodities.

Eventually, Geojit divested its commodity business and RBI gave its approval to BNP last week.

Since the warrants were issued on the condition that they would be converted only after completion of the open offer, BNP could not, so far, exercise this option.

Geojit has now approached SEBI seeking permission to extend the validity of the warrants, which expires on September 12, by another six months. Geojit’s contention is that it was not the fault of BNP that it could not convert the warrants.

The French bank had brought the funds a year ago and deposited them in an escrow account, said an official associated with the deal.

The open offer proposal is now back in SEBI’s court and the regulator is expected to clear it soon.

However, whether SEBI would allow BNP to make the offer at the original offer price of Rs 26 a share is not certain. According to analysts, SEBI may ask the French bank to revise the price as Geojit shares are currently traded at around Rs 43.

If BNP offers a higher rate and is able to get 20 per cent through the open offer, it will have the controlling stake in the company.

Currently, the promoter Mr C.J .George and family holds 22 per cent stake in the company.

The Kerala Government undertaking, KSIDC, holds 9.55 per cent and the Mumbai-based investor Mr Rakesh Jhunjunwala, 8.6 per cent. The balance is held by the public.

More Stories on : Financial Services | Preferential Allotments | Regulatory Bodies & Rulings

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