Consumer Education & Research Centre

Consumer Education and Research Centre (CERC), Ahmedabad, has called upon the Securities and Exchange Board of India (SEBI), Mumbai, to issue necessary instructions to postpone the Initial Public Offer (IPO) of GMR Infrastructure Limited, Bangalore, which is scheduled to open on 31 July 2006.

In a representation to the SEBI Chairman, Mr. M. Damodaran, CERC has said that it received serious complaints about the company's IPO, involving the fact that if the matter pending before the Supreme Court goes against the company, the investment plan of about one-third amount to be raised from the IPO will fail.

According to the Red Herring Prospectus (RHP), Rs.928 crore is to be raised from public under the IPO. Out of this fund, nearly one-third, i.e. Rs.93.2 crore, is planned to be invested in respect of the Delhi International Airport project, and Rs.289.3
crore in the acquisition of GVL Investments which holds 9 per cent stake in the Delhi International Airport. This shows that a substantial amount raised from the IPO proceeds is intended to be used for the Delhi International Airport project.

The Memorandum printed along with the Application Form containing the salient features of the RHP states that Reliance Airport, an unsuccessful bidder for the New Delhi Airport, has challenged the award of the contract of the Delhi International Airport development project to GMR Infrastructure Limited. Reliance has alleged that the award of contract was illegal and arbitrary, and has prayed for revoking the contract.

The Delhi High Court dismissed the challenge, which is now appealed by way of a Special Leave Petition (SLP) to the Supreme Court of India. The Supreme Court has admitted the SLP which is now pending for hearing.

If the Supreme Court annuls the contract of the Delhi International Airport, a substantial part of the project for which the IPO is brought will be jeopardized. In such a situation the viability of the activity, based on which the investors subscribe to the IPO, will be lost and the investment of lakhs of investors will be either lost or diminished.

After referring to the Supreme Court case and other legal proceedings against the company in respect of the Delhi International Airport, the RHP further mentions as under:

" In the event of adverse ruling or alteration in any terms of the award of the contract, our investment in the Delhi airport project including investments out of the Issue proceeds and the acquisition of subscription rights from GVL Investments may be
adversely affected and, therefore, our airport business, its prospects and results of operation could materially change...We can give no assurance that these legal proceedings will be decided in our favour. Further, we may also not be able to
quantify all the claims that we or any of our group companies are involved in. Any adverse decision may have a significant effect on our business, prospects, financial condition and results of operation."

Even the delay in the implementation of the Delhi International Airport project due to the Supreme Court proceedings or any change in conditions of the award of the contract, which may be imposed by the Supreme Court, can adversely affect the profitability of the company and consequently the valuation of shares of the company.

Moreover, the Red Herring Prospectus runs into 411 pages, whereas the Application Form runs into 16 pages in small print, wherein the reference to the Supreme Court case is made. Due to the size of the material, it is quite possible that small retail investors may miss the important information about the vital Supreme Court case.

Against this background, CERC maintains that SEBI should not have granted the permission for this IPO and that the IPO should not proceed until an affirmative decision of the Supreme Court for protecting the interest of small retail investors.

CERC has also referred to a similar case wherein SEBI had not permitted Sanghi Industries Ltd. to bring out the public issue because the matter was pending initially before the Gujarat High Court and then before the Supreme Court, where the matter is still pending. Incidentally, CERC had challenged Sanghi Industries Ltd. against its mining operations and manufacture of cement to protect the fragile ecology, especially the rare species of chinkara, of the Narayan Sarovar Sanctuary of Kutch.

Pointing out that the mandate of SEBI, as contained in the Preamble to the Securities and Exchange Board of India Act, 1992 is to protect the interest of investors in securities, CERC has urged SEBI to issue necessary instructions to postpone the IPO
till the decision of the Supreme Court of India.

CERC has sent copies of its representation also to GMR Infrastructure Limited, Bangalore, JM Morgan Stanley Private Ltd., DSP Merrill Lynch Limited, Enam Financial Consultants Private Ltd., SSKI Corporate Finance Private Ltd., all in Mumbai, and Karvy Computers Private Limited, Hyderabad.

Date : 27/12/2006 Pritee Shah
Place: Ahmedabad Editor Insight-The Consumer Magazine

Opinions, test results and research findings issued through this Press Release cannot be used in any form directly or indirectly for advertising, promotional or commercial purpose.

CONSUMER EDUCATION AND RESEARCH CENTRE
“Suraksha Sankool”, Thaltej, Ahmedabad-Gandhinagar Highway,
Ahmedabad-380 054 (INDIA)
Phone : 079 - 7489945-46, Fax : 079 - 7489947,
E-mail: cerc@cercindia.org, cercindia@gmail.com, Web Site: http://www.cercindia.org