JM Financial: Sebi initial probe points at Piramal Enterprises’ NCD

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Markets regulator Securities and Exchange Board of India in its routine examination of JM Financial found that the non-convertible debentures (NCDs) issue was floated by Piramal Enterprises in 2023. Though Sebi has not mentioned the name of the issuer, as per details provided in the Sebi’ order, it is clear that the NCD issue was of Piramal Enterprises.

In November 2023, Piramal Enterprises raised Rs 533 crore through the issue of NCDs. The base issue size was Rs 200 crore, with a green shoe option of up to Rs 800 crore, aggregating up to Rs 1,000 crore. JM Financial, AK Capital Services, Nuvama Wealth Management and Trust Investment Advisors were the merchant bankers to the issue. The issue opened on October 19, 2023 and closed on November 2, 2023.

On Thursday, Sebi prohibited the parent company JM Financial from acting as the lead manager for any new debt public issue. It said JM Financial will no longer be able to act as a lead manager for any public debt issue. However, it has been allowed to continue as lead manager for existing debt public issue mandates for another 60 days.

JM Financial will have 21 days to file its reply or objections, if any, including the option of a personal hearing. Further, SEBI will undertake an investigation into these issues, to be completed within six months.

Sebi said during its “routine examination” of public NCD issued during 2023, led Sebi to discover discrepancies and inter-Group transactions in a November 2023 issue where JM Financial Ltd (JMFL-MB) was a lead banker, wholly owned subsidiary JM Financial Services was the broker, and another subsidiary JM Financial Products (JMFPL-NBFC) was the funding arm which also accounted for over half the transaction volume on listing day.

“The involvement of JM Group entities were observed at multiple instances starting with JMFL-MB acting as the lead manager to the issue and ending with JMFPL-NBFC playing the role of an ‘exit provider’,” SEBI said, adding that the NBFC not only funded investors but also acquired the entire allotment and later offloaded it on the same day at a loss in a “synchronised manner”.

Data provided by JM Financial in its replies do not match exchange data, the regulator said. It added that the company’s replies were “perplexing” as trading decisions were made without regard for trading loss or gain given that the loss amount is significantly higher than the interest income earned.

On Tuesday, the Reserve Bank of India directed JMFPL to cease and desist, with immediate effect, from doing any form of financing against shares and debentures, , including sanction and disbursal of loans against Initial public offering (IPO) of shares as well as against subscription to non-convertible debentures (NCDs).

The RBI, in a statement, noted that its action has been necessitated due to certain serious deficiencies observed in respect of loans sanctioned by the company for IPO financing and NCD subscriptions.

The central bank observed that it carried out a limited review of the books of the company on the basis of the information shared by the Securities and Exchange Board of India (SEBI). JM Financial owns 99.71 per cent stake in JMFPL.

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