SEBI refuses to take note of price manipulation in Transgene Biotek – Part I
Moneylife Digital Team 10 March 2014

SEBI, which is preaching to world about corporate governance, has ignored investor complaints about GDR scam and blatant manipulation of Transgene Biotek shares. This is first part of a two-part series

Minority shareholders of Transgene Biotek Ltd have alleged misuse of global depository receipts (GDRs)—a financial instrument used to raise capital overseas, and several “well-timed” announcements by the company. According to these shareholders, Transgene used the structured GDR route to create equity shares without real net cash flow, converted it and then sold to gullible investors. After making several announcement to increase its share price, Transgene, then announced buy back and delisting of the company.
 

These investors have filed several complaints before market regulator Securities and Exchange Board of India (SEBI), but till date there is no action.
 

In September 2011, Transgene set up a subsidiary, Transgene Biotek Hong Kong Ltd to source strategic partnerships, acquisition and offering services to overseas customers. At that time, its price was around Rs30.50 per share. Next month, the company issued 25 lakh GDRs at $7 per GDR, worth $17.50 million. Transgene said this was done to meet its research and development (R&D), pre-clinical and clinical trials, new manufacturing facility, acquisition of technology and working capital requirements. The company soon transferred most of the money raised through GDR route, to its Hong Kong unit for buying technology. Whether the money was really paid to buy technology or refunded to ‘ghost’ GDR holders is still a big question. However, on 11 November 2011, Transgene share price moved to Rs55 per share, after the infusion of capital.
 

On 23rd November, the company announced sale of technology to TSS Export GmBH FZE worth $5 million that was expected to be completed over five-six months. However, there is no news on this front as well.
 

On 24 May 2012, Transgene announced ‘excellent’ results from its TrabiOral oral insulin studies. At that time, its share price was Rs26.50. Two months later, on 20th July, Transgene reiterated its ‘excellent’ study results while referring to unnamed customers and expected orders. At the same time it made a specific mention about its stock prices not keeping pace with its ‘development’.
 

On 16th August, Transgene announced good profit due to forex gains while talking about possible agreements with European pharmaceutical company for Tacrolimus, an immuno suppressant product and DHA, a healthcare supplement. By now, its shares had collapsed to Rs10.59.
 

Suddenly on 4 September 2012, Transgene board announced its decision to delist its shares. Three days later it announced delisting price of over Rs25 per share as against the prevailing price of only Rs10.36 per share.
 

Shareholders allege that the company had deliberately announced its delisting at a price 2.5 times more than its prevailing share prices for manipulation. After all, why will shareholders disapprove such a “generous” proposal?
 

The share prices of Transgene Biotek surged nearly 30% in just 17 trading sessions when the decision to consider delisting was announced for the first time on 27 August 2012. It made high of R14.20 on 17 September 2012 on appointing merchant bankers for its delisting process. This was a trap. The share price fell more than 65% to Rs4.91 in next two months, i.e. during 17 September 2012 to 19 November 2012. However, during the same period, the turnover of Transgene shares was huge. On 14 September 2012 its turnover stood at Rs25 crore. The stock price moved up to Rs14 from Rs10. At the same time its average volume also shots up due to several bulk deals. According to market sources, this helped the GDR holders to liquidate their position in the domestic market thus reduce their holdings.
 

Here are the questions raised by minority shareholders before SEBI…
 

1. Why was the Hong Kong subsidiary formed? What was its activity? Was it used as a conduit to transfer GDR money? What happened to the technology transfer of Rs86.50 crore which was 25% of the company’s balance sheet? Where are the accounts of this subsidiary and why are they not audited? The Auditor of Transgene has qualified the accounts on this matter.
 

2. Who are the GDR allottees? How are they related to the parties selling GDR converted shares through bulk deals?
 

3. What is the background of the FII - Stream Value Fund which invested in the company? Did they and the promoters have the wherewithal of making an open offer worth Rs175 crore? What was the understanding with this FII?
 

4. Were all the announcements including the advance indication of the buyback price of Rs25 meant to manipulate the market price?
 

5. What is the mystery behind postal ballots not being received by most of the shareholders across the country?
 

6. Was the postal ballot rigged to ensure that the "delisting" resolution is defeated?

SEBI has neither provided any answers to these questions nor initiated any action in the matter, according to the investors.
 

Tomorrow: Did promoters of Transgene used structured GDRs as an end game?

Comments
sathyacumaran
1 decade ago
sathyacumaran
instead of having so many mechanism its better if the market was in good olden days where the brokers domination now unscrupulous staff of sebi bse nse loot in early cases only the big brokers who would manage the show they would have some morale ethics now also if the brokers are not harassed and some concession is given we are sure this looting of brokers would be brought down its the officials who lure them to cheat and loot the investors

arun adalja
1 decade ago
sebi and exchanges always favour company and that is why investors always loose money.here sebi would have taken the action when they announce delisting price.but who cares?they take money and allows company to earn money.
sathyacumaran
1 decade ago
sathya cumaran
Sebi would not take any action on price manipulation because its the officials of sebi nse bse who induce the company to manipulate the price and there is considerable reward for the all the staff when Zylog was quoted for rs 375 as issue price and it went upto Rs 550 and actual the zylog main intention is loot the investors for which the internal auditors and statutory auditors and company CFo and Directors are party to it which iw very well known to officials of sebi nse bse but they made good bucks out this manipulation its the inncocent investors who have been caught sorry state of affairs this is possible only in India and what ever the rules the sebi or nse bse put everyhting would be broken by their own emplyees the rule makers are rule brakers i india
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