In this announcement by BSE - Suspension in trading of securities 31 securities will be suspended for trading from 31st March 2016.
The reasons for the suspension as per this notice - Suspension of companies as a Surveillance measure - update
It is noticed that there has been substantial increase in manipulation/abrupt movement in the prices of securities wherein common modus operandi is through the route of preferential allotment.
Now this is a good step although a little delayed and out of the 31 companies to be suspended there are at least two companies - Cupid Limited and Lykis Limited which have become a victim out of an automatic surveillance system.
Now let us look at the possible modus operandi of Manipulation as per the observation by BSE
1) Preferential warrants allotment to promoters and subsequent conversion into equity shares. Say at X rs.
2) The prices go up to 5-100x
3) Dump the shares to retail or some taxation benefit done.
This detailed post by Moneylife explains the methodology as to how Patidar Buildcon was dumped through the good old SMS methodology. Sudden surge in Patidar Buildcon volumes after mass SMS. Is SEBI aware? . Had put a tweet also about it back then. Stock price is now down from 250 to 14 rs.
Cupid Limited and Lykis Limited - Victims of the Automatic Surveillance System.
Lets take the case of Cupid Limited as thats a company which is tracked by a lot of investors and has decent volumes too. Lykis Limited has a marquee investor - Vijay Kedia as a promoter.
1) Allotment of Equity Shares to Promoter
Cupid Ltd has informed BSE that the Board of Directors of the Company at its meeting held on March 27, 2012, approved allotment of 95,000 Equity shares of Rs. 10 each on receipt of 100% funds for 95,000 convertible warrants from Mrs. Saroj Poddar.
Cupid Ltd has informed BSE that the Board of Directors of the Company at its meeting held on August 06, 2012 have approved allotment 7,00,000 equity shares against conversion of 7,00,000 convertible warrants on receipt of 100% funds for said warrants as per details below:
Name of the Allottee : Mr. Suresh Chand Garg
Category : Promoter
No. of Equity Shares : 500000
Name of the Allottee : Mrs. Saroj Poddar
Category : Non Promoter
No. of Equity Shares : 200000
2) Stock Prices go up by 5-100x
Since 2012-2013 the price of Cupid has gone up from sub 10 rs to 300-500 in next few years.
Unlike other 29 companies where revenues are dodgy , not great fundamentals and cornered shareholding the above two companies Cupid Limited and Lykis do have a running business although one can have a different thought on valuations but thats not a regulatory concern.
Will the suspension be revocated ?
As per the BSE notice
If the certificate submitted by the company confirming compliance with each of the points for preferential issue together with relevant supporting documents and same is found to fair and reasonable by the committee then
§ Based on recommendation by the Committee, process for revocation of suspension shall be initiated
§ Upon revocation, securities may be placed in the appropriate price band as may be decided and shall be subject to extant price band review policy of the Exchange.
So if the company does submit all the relevant documents it would not be difficult to get the revocation but in the meantime the company will remain suspended.
What should you do as an Investor
We have generally seen it takes a decent time for any regulatory action to change like it happened with Periodic Call Auction for Illiquid Scrips. So its tough to say whether it takes weeks or months for the revocation of the suspension.
In case of Cupid Limited and Lykis Limited I believe the revocation should happen sooner.
If you are an investor and if you like the company it would be better to just hold and be patient and tide this time out. Also given the rush to exit doubt there will be a chance to exit in next 2 sessions left.
Disclosure - I do not hold any shares in Cupid Limited or Lykis Limited.
Did evaluate Cupid Limited back at 40-70 when some investors were tracking it and totally missed the bus but did find it an interesting company.
Securities covered above:: Cupid Limited and Lykis Limited .
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