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Cash-starved CG Power wants to tap markets, said to seek Sebi exemption

The company has sought an exemption on tapping the markets from the Sebi.

Nov 11, 2019, 11.17 AM IST
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PTI
Crompton
“Sebi has been approached by the company for an exemption from the norms to raise funds,” said a person familiar with the development.
Mumbai: CG Power & Solutions, which has ousted its promoters following allegations of financial irregularities, has sought regulatory waiver on a market-access clause to raise much-needed funds, two industry executives aware of the plans told ET. CG Power’s erstwhile directors and promoters, who hold an insignificant stake in the boarddriven company, are barred from accessing the capital markets.

The company, which badly needs funds since bankers were reluctant to give fresh loans, has sought an exemption on tapping the markets from the Sebi, which barred former chairman and promoter Gautam Thapar and other ex-directors from accessing D-Street after the irregularities first surfaced.

“Sebi has been approached by the company for an exemption from the norms to raise funds,” said a person familiar with the development. “The regulator is looking into the matter.” CG Power and Sebi did not comment on ET’s queries.

Sources said that CG Power’s investment banker, the Kotak group, is handling the fund-raising proposal. ET reported on November 6 that the troubled company aims to raise around Rs 800 crore through an issue of equity or quasi-equity instruments to institutional investors — existing and new — over the next few months.

This is an “interim solution” for the company that is struggling with losses and huge debt, and is in the midst of cleaning up its management and internal processes after an alleged fraud, which will now be probed by the Serious Fraud Investigation Office.

The company told the exchanges last week that it is in need of both long-term capital and working capital and is in the process of identifying potential sources of capital and also seeking external advice on mode and sources of fund raising.

The company has also initiated the process to remove the Thapar-led Avantha Holdings, which only holds around 8,500 shares, as the company’s promoter in the wake of its role in alleged financial irregularities that may have cost the company Rs 3,000 crore.

At present, promoter reclassification rules don’t have any provision where a company can seek to remove a person from being the promoter. Rules only allow the promoter to voluntarily seek re-classification as a nonpromoter. CG Power has also asked Sebi to remove the barred individual from being the promoter of company.

Until then, Thapar and Avantha Holdings would continue to be CG Power’s official promoters, and the company’s fund-raising plans would hinge on Sebi granting the exception approval. Sebi’s Issue of Capital and Disclosure Requirement (ICDR) regulations prohibit companies, which have had their promoters included in the access blacklist, from tapping the securities market for raising funds.

“As per regulation 4(2)(a)&(b) of the ICDR, no company can make a public or rights issue if any of its promoters or directors is debarred from accessing the capital market. The rationale behind this provision is to ensure that any such promoter or director doesn't access the capital market indirectly through a company where he is a promoter or director,” said RS Loona, managing partner, alliance law and former executive director, Sebi.

“While Sebi has the general powers to relax strict enforcement of any provision of the ICDR Regulations, I have not come across any case where Sebi would have given exemption from the compliance of regulation 4(2)(a)&(b).” Sebi will hear all the concerned parties involved before taking a view on the matter, another person familiar with the development told ET.

SFIO will probe the affairs of CG Power after a regional head of the ministry concerned escalated the matter to the Centre in a report citing instances of alleged relatedparty transactions, suspected fund diversions and likely breaches that needed a more detailed scrutiny.

In April, an operations committee formed by CG Power's board was informed of some irregular financial transactions that were executed by the top brass without following due processes and board approvals. Later, the company appointed law firm Vaish Associates, which found that nine likely diversions were made, leading to a Rs 3,000-crore loss.

Also Read

MCA plea to reopen CG Power books likely

SFIO to probe fund diversion at CG Power

CG Power: Mails show deliberate attempt to deny Thapar info

In eye of storm, CG Power CEO Neelkant resigns

CG Power lenders hire audit company BDO to monitor fund flows

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