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Mallya under Sebi lens for stake sale non-disclosure

Palak Shah & Samie Modak/Mumbai 02 Nov 12 | 07:18 PM

Vijay Mallya’s cup of woes is brimming over. The Securities and Exchange Board of India (Sebi) has asked the UB Group chairman and United Breweries Holding Ltd (UBHL) to submit information on the recent share sale by three of Mallya’s companies that led to the promoter holding in UBHL reduce from 51.5% to 43.09%.

Mallya had sold 8.41% stake in UBHL between June and September – a period when the UBHL scrip enjoyed a dream run. However, no disclosure regarding the share sale was made to the exchanges, which is mandatory under Sebi's Takeover Regulations and Prohibition of Insider Trading Regulations. Under the rules, promoters have to disclose within two working days to the regulator and exchanges about any change in shareholding pattern if they are involved in buying or selling of shares.

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Sources in the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) confirmed that no disclosure regarding any stake sale was received by them and they have already asked the company to clarify the matter. Sebi sources said the regulator might also issue a show cause notice to the promoters of UBHL for failure to make adequate disclosures if their response is not satisfactory.

Company June September
Mallya Pvt. Ltd. 3.62% 0.03%
Kamsco Industries 3.62% 0.03%
Gem Investment & Trading Pvt Ltd 1.60% 0.37%
Total promoter holding 51.50% 43.09%

UBHL is a holding company for Mallya’s other firms United Spirits Ltd (USL) and Kingfisher Airlines (KFA). UBHL’s share price rallied on the back of news that global spirits major Diageo may buy stake in USL.

UBHL holds 18.03% stake in USL and would have been the chief beneficiary had Mallya managed to clinch a deal with Diageo.

An emailed questionnaire and SMSs sent to the UB Group spokesperson on Thursday did not get any response.

The share price of UBHL saw a three-fold rise from a 52-week low of Rs 53 in June to touch a high of Rs 155 in September, on the Bombay Stock Exchange (BSE). Between July and September, Mallya through his three firms — Mallya Pvt Ltd, Kamsco Industries and Gem Investment and Trading Pvt Ltd — sold the stake, which gave him around Rs 55 crore based on the company’s average stock price during the September quarter.

"Sale of any substantial holding must be followed by public disclosures under the takeover regulations and insider trading regulations. Non-disclosure can have serious consequences, specially if it is deliberate," said Sandeep Parekh, founder, Finsec Law Advisors.

According to J N Gupta, founder of Stakeholder Empowerment Services, a proxy advisory form, Sebi can issue a showcause notice and impose heavy penalty. "Now, the action should be at Sebi's end. This (non-disclosure of stake sale by promoter) is a serious matter and should not be allowed to pass without appropriate legal action or prosecution," said Gupta.

Both Gupta and Parekh are former executive directors at Sebi.

Diageo plc was in discussion with United Spirits and UBHL on a possible transaction, but there was no certainty that these discussions will lead to a transaction, following which the share price of UBHL touched a 52-week high.  The USL share price too has seen a near four-fold rally from a low of Rs 450 in January to touch a high of Rs 1,424 on October 23 on rumours of stake sale.
According to equity analyst S P Tulsian, the violation is serious as Mallya had confirmed that he was in talks with Diageo to sell stake in USL. However, Tulsian said there were at least 100 companies that had failed to disclose the change in shareholding pattern where even open offer was triggered. "Many companies have escaped for the lack of adequate monitoring system in the past five years. Mallya's case is serious due to deal talks," he said.


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