about 10 months ago
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If people had read our New Issue Analysis of Sterling and Wilson Solar Ltd (SWSL), where we had categorically asked investors to “Skip it” many would not have rued their fortune today.

SWSL as such had received a tepid response to its issue and that reflected in the listing price – Rs.725 v/s IPO price of Rs.780. And today, the moment it opened for trading, it was frozen at the 20% LC at Rs.321, which is over 40% lower than the IPO price. A complete breach of whatever faith some people had shown in the issue. A pricing of Rs.780 for a Re1 FV share was too much to begin with –a high price for ‘Shapoorji Pallonji’ association.

Today, people’s trust in this name lay shattered. “Times are so bad that even solid promoters like Shapoorji Pallonji are defaulting and raising serious governance issues!” That’s how people are viewing this.

But is it only about the bad times? What about the role of SEBI?

The company has defaulted on its loan repayment, the very objective of the IPO. The IPO had raised Rs.3125 crore mainly to repay loans or rather to correct a balance sheet anomaly.

This was explained very succinctly by our IPO analyst, Geetanjali Kedai, who said, “the company was formed out of de-merger (effective 14 May18) of Sterling and Wilson Private Ltd (SWPL)’s solar EPC business. In the process of taking over all assets and liabilities of SWPL’s solar EPC business, loans to related parties (3 fellow subsidiaries) of Rs. 1,935 crore came on company’s balance sheet, as of 31-3-19 on the asset side against a corresponding low-cost short term borrowing on the liability side. This loan amount to fellow subsidiaries stood at Rs. 1,715 crore, as of 31-12-18, as per DRHP, indicating rise of Rs. 220 crore between Jan-Mar 2019. The RHP had assured investors that both the promoters will utilise part of IPO proceeds to fully repay these loans within 90 days from listing. Thus, while the company will not directly receive any proceeds from the offer, its debt of nearly Rs. 2,000 crore (debt equity ratio of 2.1:1) will stand eliminated as an outcome of the IPO by 21st Nov as it got listed on 21st August.”

Way back in August itself, Geetanjali had warned, “The IPO was facilitating correction of an anomaly on the balance sheet, which if not attended to, can raise potential corporate governance questions.”

And that is exactly what has happened now. The issue is not about its ability to repay but more about why the management did not inform investors about the change in repayment terms. It’s a complete breach of trust, especially given the way in which they have capitalized on the “Shapoorji Pallonji” name.

The company has breached both the said objectives of the IPO - provide ‘liquidity’ to the promoters, and help the promoter group repay its loans to the firm. It has repaid a mere Rs 250 crore of the loan amount repaid, leaving a gaping Rs 2300 crore hole, an amount that was supposed to make the firm debt free after the IPO.

The management has put the blame fair and square on market conditions and its assurances given now also sounded hollow – the management said they will come up with a plan to repay by 31st Dec 2019 but no roadmap on repayment schedule was given; just that Rs.750 crore will be paid.

When money from IPO was raised to repay loans, where has that money gone? How did the company divert that money to fund their other needs?

There is no doubt that this has given a massive body blow to the very reputation which they encashed upon. Not just the reputation, it has spoilt it all for the entire solar energy sector companies which are looking on going ahead with their IPOs.

And when will SEBI step in? Its aim is to protect mere mortals like us, right? Like the RBI, it seems like SEBI only reacts and never works proactively. In all aspects, the investors are always the losers.

It is just shocking that a company like Shapoorji Pallonji will do something like this. Indeed in these times, you can trust no one; no name is worth the money.

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