Patanjali-Acquired Ruchi Soya's 8,764% Stock Surge Spurs SEBI Rethink

An 8,764 per cent surge in the shares of a company with a minuscule public shareholding has prompted the Securities and Exchange Board of India to consider changing its rules for firms emerging from the nation's bankruptcy process.

The regulator has sought comments on a proposal to cut the time given to companies that re-list after bankruptcy resolution to boost the free float to at least 10 per cent within six months from 18 months currently. The rule mandating such companies to eventually get to the minimum shareholding of 25 per cent within three years of re-listing remains.

“In one recent case it was observed that post insolvency resolution process, the public shareholding decreased to 0.97 per cent, and showed 8,764 per cent increase in its share price,” SEBI's consultation paper said, listing Ruchi Soya Industries Ltd. and four other companies that re-listed between September 2018 and February.

Ruchi Soya was acquired by a Yoga guru Baba Ramdev's Patanjali Ayurveda-led consortium last year via an insolvency resolution process. The founders held 99.03 per cent of the company's capital as of March 31.

The negligible free float saw Ruchi's shares soar from about Rs 17 at the time of re-listing on January 27 to Rs 1,519 on June 26. The price has since halved. Still, at its peak, the company was valued at $6 billion, ahead of bigger consumer-staples producers including Marico Industries Ltd. and Colgate-Palmolive India Ltd. The stock ended down 3.29 per cent at Rs 696.20 in Mumbai on Thursday.

“Such low public shareholding raises multiple concerns like failure of fair discovery of price of the scrip, need for increased surveillance measures etc. and may therefore pose as a red flag for future cases,” the regulator said.

A second option is to make it mandatory for such companies to have at least 5 per cent public shareholding at the time of re-listing, Sebi said, adding that this threshold may not be significant to allay the concerns about illiquid stocks.

Market participants have until September 18 to submit their views on the proposal.

Ruchi Soya swung to a profit of Rs 12.26 crore ($1.6 million) in the quarter ended June, while its revenue dropped 5 per cent from the preceding three-month period to Rs 3,040 crore.