Mumbai, Aug. 8: The Securities and Exchange Board of India (Sebi) today slapped a penalty of Rs 13 crore on Reliance Industries (RIL) for violating a listing agreement by not disclosing a key earnings ratio.
RIL has been asked to pay the total amount in 45 days.
This penalty relates to the issue of 12 crore warrants over seven years back by the private sector company to its promoters, which were later converted into a similar number of shares.
RIL had issued these warrants on a preferential basis on April 12, 2007 and they were converted to equity shares during the third quarter of the financial year 2008-09.
According to Sebi, the issuance had resulted in an increase in the paid-up share capital of RIL. As a result, its diluted earnings per share (DEPS) — a financial metric — also got revised.
Sebi contends that RIL did not disclose this ratio for as many as six quarters, thereby violating provisions of the listing agreement.
“EPS (basic or diluted) is a vital factor or one of the fundamental tools for the investors to consider while investing in the shares of a particular company… It is not out of place to mention that the noticee company (RIL) has millions of shareholders and prospective investors, who were deprived of the correct disclosures in relation to DEPS in the respective quarterly financial results,’’ D. Ravi Kumar, Sebi chief general manager, said today.
“We are now studying the order as to the interpretation Sebi has taken and would take appropriate action based on legal advice,” an RIL spokesperson said in a late night statement.
“The issue relates to the method of calculation of diluted EPS under the accounting standards. The issue is not of non-disclosure,” it added.
Equity dilution happens when creation of new shares reduce the ownership percentage of existing investors.
EPS (obtained by dividing net profit by the total number of shares outstanding) is a key metric that is tracked by investors. On the other hand, DEPS is what a company’s EPS will be if all outstanding convertible instruments are converted into shares.
Sebi had begun adjudication proceedings to probe the alleged violation. A show-cause notice was served on RIL in February last year. Sebi said RIL was “under an obligation to disclose separately the DEPS for the quarters ended June 2007, September 2007, December 2007, March 2008, June 2008 and September 2008”.