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How a 7-yr old $7M disclosure lapse snowballed to pummel $1.5B investor wealth

14 October, 2014

Realty stocks were battered on Tuesday, led by the sector heavyweight DLF, after the capital market regulator Securities and Exchange Board of India (SEBI) took exception and nailed a three-year ban on the country’s top realty firm by market cap along with its promoters over a disclosure lapse dating seven years ago.

What’s interesting in the bloodbath is the small trigger compared to the humongous wealth erosion caused by the incident.

Here’s a quick recap of the case (click here for full story), which dates back to two complaints filed to SEBI on June 4, 2007 and July 19, 2007 by an individual Kimsuk Krishna Sinha, involving DLF’s step down subsidiary Sudipti Estates. Sinha had alleged that Sudipti Estates and certain other persons had duped him of Rs 34 crore ($7 million then) in relation to a land transaction.

After Sinha approached Delhi High Court, the latter directed SEBI to investigate the case. SEBI in turn followed two aspects – non disclosure of information while filing for Initial Public Offering (IPO) and sham transactions to camouflage DLF’s association with the privately held firm Sudipti Estates.

In its order dated October 10, 2014, it made an exception to deal a hefty blow with a ban from participating in the securities market for three years for DLF and its top execs. Though this may be legally challenged, it has already hit realty stocks, led by DLF with an asteroid.

The stocks of country’s biggest public listed developer DLF Ltd crashed to its lowest level ever in intra-day trades as investors wondered on the implications on its plans to come with commercial mortgage backed securities to raise money to pay off its huge debt-pile.

The stock ended the day at Rs 104.95 a share, down 28.46 per cent. Taking into account the share price decline the previous day when the news was first made public, the firm has lost over Rs 8,500 crore in market value in a span of just two days. Add the impact on other realty scrips and it adds up to well over Rs 9,000 crore.

It is not alone. Its status as a representative play on the realty sector also led other realty scrips to crumble, though less sharply.

HDIL’s share price declined over 5 per cent, Unitech lost 2.4 per cent and DB Realty share price fell 2 per cent. The S&P BSE Realty index overall declined 9.5 per cent on Tuesday.

Analysts tracking the space say that the development will impact the entire realty sector and stocks negatively.

(Edited by Joby Puthuparampil Johnson)


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How a 7-yr old $7M disclosure lapse snowballed to pummel $1.5B investor wealth

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