SAT dismisses FPI shareholders plea to stop Tamilnad Mercantile Bank IPO

The Securities Appellate Tribunal on Friday dismissed the appeals filed by six foreign institutional investor shareholders of Tamilnad Mercantile Bank seeking to stall the Rs 832-crore initial public offering by the lender.

The six foreign institutional shareholders collectively own 23.2 per cent in the bank which has announced the Rs 831.6-crore share sale from September 5.

The six foreign investors are Robert & Ardis James Company which owns 4.95 per cent, Starship Equity Holdings (4.72 per cent), Subcontinental Equities (4.64 per cent), East River Holdings (3.72 per cent), Swiss Re Investors Mauritius (1.90 per cent), and FI Invest Mauritius (1.48 per cent), according to the final IPO filing.

Their shareholding in the bank is contested by the Reserve Bank.

According to sources, these had earlier filed writ petitions in the Bombay High Court to seek a Sebi direction to the bank to include their shareholding in the offer for sale, but the bank's final IPO papers do not have an OFS component but only fresh share sale of 10 per cent equity shares with a face value of Rs 10 each.

The shares held by these shareholders were considered ineligible for being offered for sale to the public after the RBI directed the bank to ensure that the shares are not transferred, the source explained.

The source also said the bank shelved the OFS plans after only six eligible shareholders collectively owning 12,505 shares had expressed their desire to sell their shares in the OFS, based on which the draft red herring prospectus had been filed.

Once these eligible shareholders withdrew their intent to offer their shares in the IPO, the bank sought Sebi nod to proceed without OFS component.

The SAT on Friday dismissed the appeals after a detailed hearing this morning in a verbal order and the detailed written order is expected soon.

A SAT bench led by justice Tarun Agarawala dismissed all the appeals saying they do not have any merit.

These investors wanted the bank to file a fresh DRHP with Sebi but the markets regulator did not find merit in the argument and did not ask the bank to file a fresh DRHP, allowing it to go ahead with its public issue that opens on Monday and closes on September 7.

The 101 year-old Tuticorin-based lender does not have any indentified promoter/promoter group as it's widely held by over 22,000 investors/shareholders.

The bank, which assumed the present name in 1962, will be issuing 1.58 crore new equity shares of Rs 10 face value in the IPO which constitute 10 per cent of its equity shares.

The bank's managing director and chief executive, K V Rama Murthy, said with this the bank does not come under the Sebi norm of 25 per cent minimum public shareholding as it is already fully owned by shareholders.

The DRHP also said as much as 37.73 per cent or 53.76 million share of its equity shares are under various legal and regulatory disputes and the bank is also under probe by the RBI and the 
Enforcement Directorate and that any negative outcomes will be costly for the bank and its shareholders.

It can be noted that the bank had missed the December 2021 deadline set by the RBI for the IPO, which then led to the bank being barred from expansion and curbs on its key management personnel.

The IPO will be a fresh issue of 1.58 crore equity shares and the bank proposes to utilise the proceeds to augment its core capital, which will touch 25 per cent from the present 22 per cent post issue and also to meet future capital requirements.

Tamilnad Mercantile Bank is one of the oldest private sector banks with a history of 101 years having being established in 1921 as Nadar Bank.