HNG Insolvency Resolution: Cloud Over AGI Greenpac's Stock Exchange Disclosures
Did AGI Greenpac hold back on crucial and stock price-moving disclosures to the stock exchanges regarding its deal to buy Hindustan National Glass (HNG)? Justice Vikramajit Sen, the former judge of Karnataka High Court (HC) and India's Supreme Court (SC), has opined that market regulator SEBI should probe and take action against both AGI and HNG for their failure to disclose material information to the shareholders.
BW has seen the documents relating to Justice Sen's view, which says that selective disclosures by AGI and HNG with regard to a Competition Commission of India's (CCI's) "conditional" approval for the deal are in violation of SEBI and stock exchange disclosure rules. The corporate insolvency resolution process (CIRP) involving HNG has stretched for nearly two years now and has been embroiled in several controversies. At least two former judges of India' SC Justice AK Sikri and Justice NV Ramana have given their opinion on their deal wherein they have highlighted the flaws in the CIRP process. Documents show that the judges have given their opinion based on the documents related to the deal and the parties that sought their views.
"A mere perusal of the disclosures made by AGI to the Stock Exchanges show that it had to put itself in the best light, made a partial and indeed a deceitful disclosure about the CCI approval. I am of the view that information regarding CCI approval being contingent on the divestiture promised by AGI is an event that shall indubitably have a material and deleterious impact on the listed entity; more likely than not, is certain to result in discontinuity or alteration of event or information already available publicly. Therefore, it would result in significant market reaction when the aforesaid omission is known to the public at a later stage," says Justice Sen.
AGI's resolution plan got "conditional" approval from the CCI in March 2023. There were complaints that AGI's acquisition of HNG would create a monopoly in the segment it operates yet the CCI gave its go-ahead on the "condition" that AGI had agreed to divest HNG's Rishikesh plant. It was the first merger filing approved "conditionally" by the CCI in a matter involving debt resolution process under the doctrine of necessity. It was not known in the public what conditions were agreed upon. Two former judges of the SC Justice AK Sikri and NV Ramanna have opined against such conditional approval, due to which the case requires a thorough re-investigation by the new regime in CCI.
Dream Run of AGI Share Price
Between April and October, the share price of AGI witnessed 236 per cent gains from a low of Rs 334 to high of Rs 1089.
"Notably, the letter dated 16.03.2023 sent by AGI Greenpac informing the Stock Exchanges of the CCI approval, conspicuously fails to mention that the approval granted was conditional upon AGI executing the proposed modification, that is the voluntary divestiture of the Rishikesh Plant of HNG. AGI vide its letter dated 16.03.2023 informed the Stock Exchanges that the CCI Order “is awaited”, even though AGI was aware of its gravamen. The Order of the CCI was eventually uploaded on 19.04.2023 but it was not shared by AGI," Justice Sen says.
CCI in its Order has given a detailed analysis of the repercussions of the modification on the proposed combination, wherein it has been stated that the Rishikesh Plant has a production capacity of 400 TPD, constituting approximately 17 percent of HNG’s total utilised capacity and accounting for 25 percent of incremental capacity, considering that AGI’s installed capacity is 1600 TPD. The Order of the CCI notes that AGI has admitted that the Rishikesh plant is present in all four segments of the container glass market and the divestiture would lead to the elimination of around 28 percent and 15 percent of the increment in alco-beverage and F&B segments.
Justice Sen believes that divestment of such a strategic asset from the portfolio would have a considerable impact on the investor sentiment. He says that AGI ought to have disclosed the purported modification mentioned in the CCI Order dated 15.03.2023 instead of cherry-picking from the contents of the CCI. It becomes manifestly clear that AGI instead of putting complete facts in the public domain intentionally endeavoured to create a cloud for its investors by publishing incomplete information in a news article dated 27.07.2023 about the acquisition of HNG and the benefits arising therefrom.
"The divestiture proposed by AGI was not reflected in disclosures made by either AGI and/or HNG. Given the price sensitivity involved, the information regarding approval by CCI, being contingent on the implementation of that modification, would constitute material information. Therefore, non-disclosure of such information by the Corporate Debtor/HNG and the acquirer AGI would contravene the SEBI LODR (Listing Obligations and Disclosure Requirements) Regulations and amount to material suppression of information on behalf of these listed entities," Justice Sen said.
Disclosure norms of Sebi intend to reduce market speculation over unconfirmed events. Non-disclosure or selective disclosure of material information creates information asymmetry in the market causing disarrayed market results and Appreciable Adverse Effect on Competition in the relevant market. Justice Sen says that AGI ought to have disclosed the purported modification mentioned in the CCI Order dated 15.03.2023 instead of cherry-picking from the contents of the CCI approval.
"It becomes manifestly clear that AGI instead of putting complete facts in the public domain intentionally endeavoured to create a cloud for its investors by publishing incomplete information in a news article dated 27.07.2023 about the acquisition of HNG and the benefits arising therefrom. The Stock Exchanges are empowered under Regulation 30 (10) of the LODR Regulations to seek clarifications on any information or event from a listed Company. It is noteworthy that already the National Stock Exchange of India had repeatedly by way of Surveillance dated 14 June 2023, inquired about the increase in volume of AGI shares," Justice Sen said.
