IPO funding: Are money lenders obliged to finance individuals or companies?
The spat between Ashneer Grover, the co-founder of fintech BharatPe, and Kotak Mahindra Bank has raised questions of whether lenders are obligated to fund an individual or a company even if they are willing to do so at an early stage, or if it is governed by a contract that may exist between the two parties.
This has cropped up after Grover and his wife Madhuri Grover, sent a legal notice to the private sector lender and its top executives that included MD & CEO Uday Kotak, Oisharya Das —CEO, Kotak Wealth Management, Shanti Ekambaram — group president, consumer banking and KVS Manian — director and president – corporate, institutional & investment Banking for not providing IPO financing to the share float of FSN E-Commerce Ventures Ltd.
The legal notice was sent by Regstreet Law Advisors who represented the Grovers.
The notice alleged that the refusal to provide IPO financing deprived Grover and his wife of a business or investment opportunity about which they had informed the bank more than a month in advance of the launch of the IPO.
“Kotak’s refusal to provide IPO financing to our clients for the Nykaa IPO constitutes a blatant violation of its legal obligations owed to our clients as their wealth managers. It is also contrary to the repeated representations made to our clients regarding Kotak’s ability to provide IPO financing (including on the day on which the IPO opened to the public for subscription),’’ the notice maintained.
The share sale, which opened for subscription on October 28 and closed on November 1, came at a price band of Rs 1085-1125 . It had ended with a premium of 96 per cent to its issue price on debut. While the IPO was subscribed 82 times, the HNI portion was subscribed 112.51 times.
Capital market circles said that during over-subscription, shares are allotted on a pro-rata basis. Here though the investors will get allotment, they will only get a fraction of the shares applied for. According to the legal notice, Grover and his wife wanted to subscribe to Nykaa shares jointly worth Rs 500 crore.
Market sources who did not wish to be identified estimated that given the over-subscription in the HNI category in Nykaa, they may have got allotment of shares worth around Rs 5 crore and given the premium of 96 per cent on the opening day, they would made profit of roughly the same amount.