Ruchi Soya, a Patanjali Ayurved-owned edible oil company, may find it difficult to repay its loan of about 3,300 crore rupees ($4.34 billion) by April, as promised by yoga guru Ramdev.
On March 28, the Indian market regulator securities and exchange board of India (Sebi) allowed investors, except anchor buyers, to withdraw their applications from Ruchi Soya’s Rs4,300 crore follow-on public offer (FPO). The withdrawal window will remain open till March 30.
The proceeds of the FPO were to be used to repay Ruchi’s debt. Sebi’s unprecedented move follows some “unsolicited SMSs advertising the issue.”
Sebi lets companies be innovative in their advertisements as long as they are not misleading and as long as they contain necessary disclosures of associated risks and other facts.
The debt-laden company’s FPO, priced Rs615-Rs690 apiece, was subscribed 3.60 times on the final day yesterday (March 28). The company had received bids for 175 million equity shares against the issue size of 48.9 million equity shares during the three-day issue.
Today, however, the subscription fell to 2.58 times.
The portion reserved for qualified institutional buyers, which largely comprises foreign investors, was subscribed 2.2 times. The quota for high net worth individuals was reserved by 11.75 times and the portion set aside for retail investors was subscribed to 90%.
Citing the circulation of the message, Sebi asked Ruchi Soya to issue an advertisement in newspapers cautioning investors against the circulation of such misleading SMSes.
This could change the final subscription numbers post-March 30 and delay the completion of the FPO process.
The company today issued a public notice stating that it had filed a case to probe these text messages advertising the company’s FPO.
This, however, is not the first time the FPO has come under Sebi’s radar for misleading communication.
In October 2021, the market watchdog issued a warning to the company and its merchant bankers for flouting advertisement regulations and norms of insider trading and unfair trade practices.
“I will give you a mantra to become a crorepati (millionaire)…I give you a guarantee that nobody can stop a person from turning crorepati if he invests in Ruchi Soya or Patanjali,” Patanjali’s Ramdev had said in an address to his followers then.
However, its troubles began much earlier in 2011 from a slew of factors: unfavourable duty structures that impacted profit margins and poor monsoons that hurt the company’s seed extraction process.
Besides, Ruchi Soya’s nearly four-decade-old business model was difficult to sustain. Since it is a supplier to consumer goods firms like Patanjali and does not sell directly to consumers, it resulted in a long payment period, forcing it to take on short-term debt.