The request was made after the category ´C´ financial institution´s IPO remained undersubscribed, while its underwriter failed to fulfill the commitment of purchasing the unsubscribed shares.[break]
If Lotus is allowed to return the money back to the public, it will be first such case in the country´s IPO history, according to Sebon.
Lotus launched its IPO on June 10, during which the finance company was able to raise only Rs 11.31 million of the targeted Rs 80 million.
Following this, Lotus approached its underwriter, Civil Capital Market Limited, and asked it to keep its promise by purchasing 50 percent of the shares worth Rs 40 million. The request was made based on the agreement signed between the two prior to the launch of the IPO. But Civil denied.
Instead, it wrote a letter to Sebon requesting that it be allowed to return Rs 11.31 million raised from the primary market to the public so that a fresh IPO can be launched again in future.
Civil Capital argues it was forced to take the step after promoters of the finance company denied forking out Rs 28.69 million that would have fallen short even if the company made its contribution.
The argument was based on the logic that promoters should also take the responsibility for the failure of the IPO and chip in the deficit amount. This simply meant the 80-million-rupee IPO would have been fully subscribed had promoters of the finance company raised Rs 28.69 in time, as the public had already contributed Rs 11.31 million and Civil had pledged to purchase Rs 40 million worth of shares.
Lotus, on the other hand, argues its promoters had never denied injecting their part of money. “They only said they could not arrange the funds immediately and would make their part of contribution by mid-July 2013 when the finance company has to meet the minimum regulatory capital requirement of Rs 200 million. They even changed the date to mid-April 2013 after pressure began building on them,” Samaj Prakash Shrestha, CEO of Lotus Investment Finance, said.
At that time, Sebon had sided with Lotus and called arguments of Civil Capital “baseless”. It even said “allotted shares should have been purchased by Civil without making a fuss”, but failed to issue clear instructions as the existing law remains silent on the issue.
Later, the finance company even said a group of investors had expressed interest in purchasing all the shares that were not subscribed by the public. “But they later backed as they could not arrange the money,” Shrestha said, adding, “Now we have only two options left. First is to re-launch the IPO and second is to go for merger as we have to meet the minimum regulatory capital of Rs 200 million by mid-July.”
Both the options, according to Shrestha, can only be explored after Sebon comes up with a response.
However, Sebon denied making comments. It also denied mentioning who will pay the interest on the money raised from the public during the IPO, as Sebon´s Securities Registration and Issue Regulation clearly states that “matters related to … refund with interest for not completing allotment on time … shall be stipulated by the Board through the issue of directives”.
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