Some Vedanta bids under Sebi scanner

The failure of what was billed as the largest ever delisting in India due to so-called unconfirmed bids has put the market regulator and market infrastructure institutes in a huddle in their search for the reasons behind the fiasco.

The Securities and Exchange Board of India (Sebi) is working with BSE Ltd to try and figure out the identities of these unconfirmed bidders—institutions and brokers who punched these bids—and why the bids remained unconfirmed, said two people with direct knowledge of the issue.

The 9 October bid to delist Vedanta Resources’ subsidiary Vedanta Ltd was rendered unsuccessful as it fell 7% short of the 1.34 billion shares needed.

“We saw enthusiastic participation by shareholders that took us within striking distance of our goal, short by only 7%. The bid would have resulted in FDI flow of over $3.15 billion into the economy and helped boost growth between 0.4% and 0.8% through the multiplier impact of such large infusion of funds,” said Vedanta in a statement on Wednesday.

Vedanta is in the process of returning the shares to the shareholders.

There were close to 123 million shares that were categorized as unconfirmed bids. These were the boundary line in determining the success of the price discovery process. Since they remained unconfirmed until the closure of the bidding period, the 90% threshold (total shares that needed to be tendered) could not be achieved. In fact, Sebi and BSE had extended the bidding hours by 3.5 hours to 7 pm. But even during the extended hours, very few orders came into the system.

Analysts and experts raised questions on whether this was a result of wrong order punching by brokers, or perhaps glitches on the stock exchange platform. BSE told Sebi the entire system was working properly on 9 October.

“BSE on its part has clarified that the order entry system on Friday worked without a hitch or a glitch. Bidding system/bidding screen was continuously working without a single complaint from any broker throughout the day. The institutional trades require orders to be confirmed by custodians later on. Custodians could not confirm many of these orders and were considered invalid later on. Fact-finding is going on at this stage,” said the first of the two people cited above.

“Due to a variety of reasons, custodians may not confirm the orders, and those orders are not considered valid later on. BSE is not aware of the reasons for each specific order not getting confirmed,” said a BSE spokesperson.

Exchanges, custodians and Sebi are considering three or four reasons behind such a large number of bids remaining unconfirmed.

“Were some of 12 crore (120 million) bids empty one to give a false sense of delisting success? Second, the price of the bulk of these unconfirmed bids was ₹320, a price indicated by a large institutional shareholder. Third, for bids to be successful, you need to have the same amount of shares in demat; many of these shares were pledged, and the lien was not removed, which led to custodians unable to confirm these. Finally, whether these unconfirmed bids were (the result of) just incorrect punching by brokers,” said the second of the two people.

In the case of Vedanta, there were 69.6 million unconfirmed bids at a price of ₹320.00 apiece.

“A benign explanation is that the broker acting on behalf of these shareholder/s inputted this number and had no way to expunge the incorrect bid. Whether it was a genuine error or deliberate, although hard to establish, needs to be looked into,” said Institutional Investor Advisory Services in a note on Tuesday.

J.N. Gupta, founder of proxy advisory firm Stakeholder Empowerment Services,said Sebi should probe who placed these unconfirmed bids and why they remained unconfirmed.