SEBI extends warrant conversion deadline for Deepak Fertilizers

PALAK SHAH Mumbai | Updated on April 16, 2020 Published on April 16, 2020

But experts see no correlation to Covid-19 lockdown

SEBI has granted an extension of deadline to the promoters of Deepak Fertilizers and Petrochemicals Corporation (DFPC) with regard to conversion of their warrants into equity. The company said the extension was granted until May 15 due to ‘present uncertain times’. However, legal experts said that it is rare for SEBI to grant an extension of warrant conversion deadline without issuing a ‘written public order’. Also, conversion of warrants had 18-month time period and one month Covid-19 related lockdown could have no correlation to it.

A warrant is a derivative instrument which the buyer promises to buy at a later date at an agreed price or the initial payment gets forfeited. As per SEBI guidelines on preferential issues, convertible warrants have a deadline of 18 months from the issue date.

On April 15, DFPC said that its promoter Robust Marketing Services (RMS) had approached the company to make request SEBI for an extension. DFPC had issued convertible warrants to RSM for ₹200 crore in October 2018. Then, Deepak Fert shares were trading around ₹200.

On Thursday, the shares closed at ₹92. At the time of warrant purchase, only a part payment has to be made. The remaining amount has to be given on conversion at a price agreed at time of the issue for exercising the warrants. The share price of Deepak Fertilizers is currently trading at a substantial discount to the warrant conversion price. If the promoters don’t pay then the warrant subscription money has to be forfeited.

According to the public notice by DFPC the promoters had paid ₹50 crore at the time of issue of warrants, which was 25 per cent of the issue size. Later, in October 2019, the RMS paid another ₹25 crore out of the aforesaid ₹200 crore. It means the promoters were required to pay ₹125 crore additional sum to the company as per the warrant exercise norms by April 2020. But SEBI has now extended this deadline.

“In the recent past SEBI has disallowed any such request from promoter of even a large media and entertainment company. Also, the regulator issues a written public orders with regard to the companies it makes an exception. From the public disclosure of Deepak Fertilizers it is not clear as to when the company approached the regulator and exact date of SEBI granting it an extension,” said a legal expert.

SEBI did not comment on queries regarding why there was no ‘written public order’ and if 18 months deadline for conversion of warrants that were issued in 2018 had anything to do with Covid-19 related lock-down in March 2020.

Published on April 16, 2020

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