10 highlights
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Ruchi Soya Industries Ltd, a company which had gone bankrupt in 2019, now commands a valuation of Rs 33,255 crore. If you’ve been observing the public markets for as long as we have, you know this is either a scam or an opportunity.
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Baba Ramdev, the knight in shining armour, did not have the cash to pay Ruchi Soya’s bankers. At the time, he said he just had Rs 1,100 crore. What about the rest of the money? Well, he borrowed the rest, Rs 3,250 crore to be exact, from the very banks who were selling Ruchi Soya.
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Baba Ramdev’s Patanjali Ayurved came to the rescue and acquired the company in December 2019 for a consideration of Rs 4,350 crore. This money was to be paid to financial creditors at an estimated haircut of 56%, where half the debt was written off by the banks.
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Ruchi Soya listed afresh on the bourses after coming out of bankruptcy proceedings on 27 January 2020 and began trading at Rs 16.50. Nothing changed materially with the company’s operation or performance except the introduction of new shareholders but in the span of just five months the stock skyrocketed and touched a high of Rs 1,519 on 26 June. An increase of 8764%.
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Some called it Patanjali’s magic. Most others called it managed speculation.
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But by any benchmark or standards, these swings are not kosher and appear to be a case of market manipulators having a field day.
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As per the erstwhile rules, Ruchi Soya needs to increase its public shareholding to 10% within 18 months of relisting. So the company is now selling stake worth Rs 4,300 crore to the public. This money will be used to repay the debt taken for acquisition of the company, making it debt-free.
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Any market regulator with a spine that doesn’t resemble a turtle’s back would have put an end to this charade.
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That SEBI missed this blatant inefficiency in allowing IBC-resolved companies to have low public float is a surprise. To give credit where it is due, it did catch on finally and amended the norms to ensure that such companies need to have a minimum public float of 5%. It’s a middle path—5% equity shareholding won’t make it too unattractive for incoming bidders, yet make it slightly more difficult to manipulate the stock price.
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Because, in the end, public shareholders will end up investing in the company at a manipulated price. This does nothing but harm small investors and undermine the sanctity of the stock market.