SEBI Blocks Trafiksol’s BSE Listing Over IPO Proceeds Misuse Concerns: Investigation Underway

India’s capital markets regulator, SEBI, has instructed the Bombay Stock Exchange (BSE) not to go ahead with the listing of Trafiksol ITS Technologies. This comes after serious concerns were raised about how the money from the company’s Initial Public Offering (IPO) was being used.

Complaints About Software Purchase

SEBI received multiple complaints about Trafiksol’s purchase of software from a third-party vendor. The vendor appears to be a shell company with no prior experience in software development. Because of this, SEBI has decided to thoroughly investigate the company’s disclosures in its Draft Red Herring Prospectus (DRHP), which was filed with BSE. The investigation is expected to take 30 days.

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IPO Received Strong Investor Interest

Trafiksol’s IPO, which opened in September, attracted strong interest from investors, receiving over 300 times subscription by the time it closed. However, despite this success, the listing has not yet occurred. The company had planned to use the IPO money to buy software, pay off debt, meet working capital needs, and cover general corporate expenses.

SEBI Requests Investigation

Following the initial complaints about the software purchase, SEBI asked BSE to look into the allegations. As a result, BSE advised Trafiksol and its merchant banker to keep all IPO proceeds in an escrow account and delayed the listing.

Investor Complaints and Meeting with SEBI

After the listing was postponed, SEBI received several complaints from investors who had been allocated shares in the IPO. Most of these investors requested a cancellation of the IPO and a refund of their investments.

In a separate move, SEBI called Ekadrisht, the lead manager for the IPO, to a meeting to clarify the issues raised in the complaints. However, the lead manager could not provide satisfactory answers.

Vendor’s Questionable Financials

SEBI also noted that the third-party vendor from which Trafiksol planned to buy the software for Rs 17.7 crore had not submitted financial statements to the Ministry of Corporate Affairs for more than three years. In addition, the vendor reported no revenue in its last filed financial report. This raised further doubts about the legitimacy of the transaction.