Mumbai investment banking officials under SEBI scanner for leaking GMM Pfaudler price information

Officials from one of Mumbai’s leading investment bank cum brokerage house are under the scanner of market regulator SEBI for leaking price sensitive information ahead of the offer for sale (OFS) of GMM Pfaudler in September 2020, sources told BusinessLine. Large quantities of shares were borrowed via the Securities Lending and Borrowing (SLB) window and sold in open market days ahead of the company’s OFS with insider knowledge. SEBI has found that the information that the OFS price of GMM Pfaudler would be much lower than the then prevailing market price was leaked by officials of one of the investment banks, the sources said. The share price of GMM Pfaudler had rallied by nearly 200 percent between January and September 2020. The stock rose from Rs 1871 as on December 31, 2019 to Rs 5203 as on September 21. But on September 21, the company announced the OFS share price, which was at 33 percent discount to its previous day’s closing price of Rs 5,241 on the BSE. Ahead of this announcement, shares were borrowed by certain entities and sold in the open market. SEBI conducted an investigation into this to check if there was any insider trading and front running. SEBI is likely to issue its order any time into the matter, the sources said. SEBI investigations were based on the sequence of the stock price up-move, the subsequent downtick, the borrowing of the shares in the SLB mechanism and the OFS following that, all of which had nothing to do with the fundamentals of GMM Pfaudler at all. Pfaudler Inc, Millars Machinery, and Urmi Patel, the promoters of India listed company, were selling 25.71 lakh shares or 17.59 percent of the total equity with an option to additionally sell 15.21 lakh shares that represent 10.41 percent of the total issued and paid-up equity share capital of the company, GMM Pfaudler said in a release in September. The sale was to fund another acquisition as the GMM Pfaudler had acquired a majority stake in the global business of Pfaudler group. Subsequently, the company announced an OFS by the promoters at a floor price of Rs 3,500 per share on September 22 and the OFS opened on the same day. In such cases, there are very few people who have knowledge of the price and other details of the issue. It is either the company promoters who were selling or officials of the investment bank that was handling the issue and hence trading data can reveal vital clues, the sources said. The SLB data from stock exchanges depicted heightened activity as nearly two lakh shares of GMM Pfaudler were borrowed between August 11 till September 25 and sold in open market. Borrowers in SLB are usually short-sellers, who don’t own those shares.  The share price of GMM Pfaudler had touched a high of Rs 6913 on August 12, 2020 and then started a downward trend in the counter before the OFS announcement. GMM Pfaudler is a supplier of pharmaceutical companies, specialty chemicals, and agrochemicals.

COMMENT NOW