When drugmaker Sun Pharma had bought Ranbaxy for $4 billion in 2014, Sun Chairman Israel Makov had rejected allegations of insider trading.
Responding to concerns raised then on whether deal-street had got wind of Sun’s buy in advance, Makov had told
Questions were asked then because Ranbaxy’s share price saw a spike in the run-up to the deal, and Sun, through a subsidiary, had invested in it.
ALSO READ: Uncertainties continue to cast a shadow on Sun Pharma
Four years on, insider trading charges and more have come back to haunt Sun Pharma and they look unlikely to go away just yet, even as promoter and Managing Director Dilip Shanghvi sought to clarify the company’s position to allay investor fears.
A whistle-blower has reportedly raised corporate governance issues in Sun Pharma with the Securities and Exchange Board of India (SEBI). But Shanghvi, in an investor call on Monday evening, said they had not heard from the market regulator on the whistle-blower report nor on a likely re-opening of a probe on insider trading charges.
Changed regulations
Addressing the alleged whistle-blower’s concerns on irregularities and other alleged discrepancies flagged recently by brokerage firm Macquarie, Shanghvi said the company had not faltered on corporate governance.
Some allegations like lending to four individuals without a security, he said, were 20 years old, and in some cases, the laws had changed since. Responding to Sun’s domestic formulations business being routed through related entity Aditya Medisales Ltd (AML), Shanghvi indicated that the management was willing to assess its corporate engagement with the entity if investors were not comfortable with the present structure. AML had become a related party only in FY18, he said.
Loans and advances
However, a veteran market-hand who listened in to Sun Pharma’s investor call said that Shanghvi should have given details, for instance, on the loans and advances of about ₹1,800 crore given in FY18. Questions have been raised by analysts on these loans extended to non-related parties, that have seen an increase last year.
Valia’s investments
Recalling the Ranbaxy investment, another analyst said that questions keep popping up around the investments made by Sudhir Valia through entities he is engaged in. Valia is Shanghvi’s brother-in-law. One such question doing the rounds this time involves Lakshdeep Investments & Finance and why it was not considered a promoter entity? “Lakshdeep is an investment company of Sudhir Valia. As per the then legal advice we received, we classified the same as a non-promoter entity and disclosures were made accordingly. However, even if it were to be classified as a promoter entity, it does not materially change the current promoter shareholding,” the management said. However, since the concern has been raised, they added, “we are in the process of seeking a revised legal opinion on this matter.”
On the relationship between Orbit Investment Services and Investment Trust of India, Sun clarified that “investments made by these entities may be private investments made by independent parties, which the company is not privy to.”
Clarifying on a string of other allegations, the company said, it had not been involved in any insider trading norm violations relating to the Ranbaxy deal. There was a minor technical issue relating to a procedural aspect of trading window closure due to intervening holidays. But since SEBI later ruled that Sun should have announced a window closure, “This case was settled with SEBI with no admission of guilt in accordance with the provisions of applicable laws and matter was closed.” Media reports said top Sun management paid ₹18 lakh to settle the probe.
With uncertainties continuing to cast a shadow on Sun Pharma, investors await the next move from SEBI, even as they worry if more skeletons could tumble out of the cupboard.