8:10 Bonus & 1:10 Split Record Date Suspended: Why Trading In Bharat Global Developers Halted By SEBI?

Bharat Global Developers, a smallcap stock, has come under the radar of market regulator Sebi which led to the postponement of its much-awaited bonus issue of 8:10 and stock split of 1:10 ratio. Ahmedabad-based Bharat Global Developers has become a hot topic for investors and a lesson to why due diligence is a must when it comes to investing in a listed company on exchanges. Sebi has suspended trading in Bharat Global Developers after it observed misuse of the visibility, credibility and liquidity afforded by listing on stock exchanges for inducement and defrauding of investors.

So how did Bharat Global Developers enter into scrutiny, and what will happen to its share price, upcoming bonus and stock splits?

Bharat Global Developers Sebi Order:

Bharat Global Developers came under Sebi's watch after the regulator took note of social media posts and a complaint was dated December 16, related to suspicious financials and disclosures by the company.

From November 2023 to November 2024, Bharat Global Developers stock recorded a steep 105-times jump in its share price from Rs 16.14 to Rs 1,702.95, according to data provided by Sebi.

Sebi examined the matter to ascertain whether there was any violation of the provisions of securities laws including the SEBI Act, 1992 ("SEBI Act"), SEBI (Prohibition of Fraudulent and Unfair Trade Practices in Securities Markets)
Regulations, 2003 ("PFUTP Regulations") and the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 ("LODR Regulations").

Here are the findings of Sebi during its preliminary examination of BGDL:

Firstly, it examined the complaints and reports related to BGDL which revealed that the company had five promoters holding 93,860 shares comprising 16.77% of total shareholding till June 2020. However, BDGL has disclosed NIL promoter shareholding and 100% public shareholding from the September 2020 quarter.

Secondly, last year in December, the top management of BGDL was overhauled. Right Statutory Auditor, Chief Financial Officer ("CFO") and director of the company resigned on December 4, 2023, which followed the appointment of five new directors.

Thirdly, after the five new members aboard, BGDL carried two preferential allotments of shares - 9.72 crore shares in April 2024 to 31 allottees and 35 lakh shares in August 2024 to 10 allottees. These large preferential allotments resulted in 99.5% of the shareholding being concentrated in the hands of these 41 allottees, who were classified as "public" shareholders. The first tranche of preferentially allotted shares was locked in till October 31, 2024, and the second tranche is locked in
till June 21, 2025.

Meanwhile, from October 2024, BGDL started making certain disclosures. Such as BGDL intimated to BSE that it established six subsidiaries in diverse business areas such as aerospace and defence, agro-technology gems and mining.

Soon after, on November 4, the company disclosed that it had bagged "prestigious" high-value orders from ostensibly marquee companies such as Reliance Industries Ltd., "TATA Agro & Consumer Products", "McCain India Agro Pvt. Ltd." and "UPL Agro Pvt. Ltd."

Even in January this year, the company claimed that it incorporated a wholly-owned subsidiary in Dubai. And later it claimed that this new subsidiary in Dubai had secured high-value orders of Rs 251 crore on November 21, 2024, for processing and supplying high-value precious stones, including diamonds, rubies, emeralds and sapphires to prominent wholesalers and bespoke designer jewellery boutiques.

These big announcements led to a sharp surge in BGDL's share prices. From trading around Rs 642 on October 29, 2024, the company touched its 52-week high of Rs 1702.95/- on November 28, 2024.

Apart from this, Sebi found out that from November 1st to December 20th this year, a total of thirteen preferential allottees offloaded a total of 21,17,582 shares amounting to approximately Rs. 271 crore which was around 2.09.% of the total shareholding of the Company to public shareholders.

Sebi's finding said, "The sale of shares began immediately after lock-in was released on October 31, 2024. Since the shares were allotted at INR 10, and sales were made at market price which had shot up after the company's disclosures, a total profit of approximately INR 269 crore was made by the thirteen preferential allottees from the first tranche."

Additionally, from disclosures on BSE, Sebi understood that the number of public shareholders in BGDL surged quickly and substantially for the first time, from 10,129 in the Quarter Ended ("QE") September 2024, to 44,976 as of December 5, 2024.

Meanwhile, BGDL's financial statements appear to misrepresent the true state of affairs of the Company and its business. The financial statements revealed that till FY23, the Company had negligible revenue, expenses, fixed assets and cash flows.

However, from QE March 2024, BGDL's financial statement recorded a steep spike in revenues and expenses. This was accompanied by negligible fixed assets, negative cash flows from operating activities and huge amounts of trade receivables and payables.

From the above, Sebi concluded that the disclosures and all events that have happened in a well-orchestrated manner could not have happened serendipitously; there was a design to it.

Accordingly, Sebi issued an interim order. It said, "The facts before me prima facie reveal misuse of the visibility, credibility and liquidity afforded by listing on stock exchanges for inducement and defrauding of investors. A listed company which solicits and depends on investors' money based on information served to the public, is expected to be compliant and truthful to preserve good faith dealings in the securities market."

Sebi added, "The shocking falsities peddled by the Company as legally mandated disclosures to the exchange lay bare a prima facie devious artifice involving systematic execution of a well-planned fraudulent scheme."

Hence, Sebi has exercised its powers and said, "Trading in the scrip of Bharat Global Developers Ltd. is suspended till further orders."

Also, Sebi banned a host of notices related to BGDL including the company itself from buying, selling or dealing in securities, or accessing the capital market either directly or indirectly, in any manner whatsoever until further orders.

Furthermore, Sebi has directed a detailed investigation which may be completed expeditiously by the end of this financial year, i.e., March 31, 2025. Also, Sebi has allowed 21 21-day timeframes to the noticees including BGDL to file its reply/objections and whether they desire to avail an opportunity for personal hearing.

What about bonus issues and stock splits?

Bharat Global Developers Bonus Issue:

BGDL had earlier fixed Thursday, December 26, as the record date for the purposes of ascertaining the eligibility of shareholders entitled to the issue of Bonus Shares. Bharat Global is all set to pay an 8:10 bonus issue to investors. This meant that the company will issue eight new bonus Equity Shares of Rs.10/- each for every Ten existing fully paid-up Equity Shares of Rs.10/- each, held.

Bharat Global Developers Stock Split:

Also, BGDL announced stock split in the ratio of 1:10 which is for the first time. The ratio means a sub-division of One (1) Equity Share of the face value of Rs. 10/- (Rupees Ten only) each into Ten (10) equity shares of the face value of Re.1/- (Rupee One only) each. The record date was also set on December 26.

SEBI's order said, "There has been significant interest generated in the media around the "free shares" being offered to shareholders of a Company with diverse business interest and ostensibly reputable contracts under its belt. The scrip is being widely reported in the media and perceived as a multi-bagger stock withdiverse business interests and excellent prospects. The bonus issue and stock split needs to be stopped so that further increase in number of public shareholders does not take place."

Also, the regulator said, "The fact that the record date for a generous bonus allotment of shares in the ratio of 8:10 and a share split of 10:1 is 26 December 2024, would lead to investors holding 18 shares for 1 share held today. The simultaneous corporate action will significantly increase liquidity of shares and their trading volumes. This needs to be stopped. It can be safely assumed that the numbers of shareholders will rise sharply when such large liquidity is injected. There is, therefore, a need to act promptly before large scale distribution (sale) of shares is allowed to happen."

Bharat Global Developers Share Price:

The stock last traded on December 20th, where it was priced at Rs 1236.45 apiece at its lower circuit of 5%. The stock's 52-week high and low is at Rs 1,702.95 apiece and Rs 50.43 apiece currently.

BHARAT GLOBAL DEVELOPERS, a public limited company incorporated on June 15th 1992 in Ahmedabad is a pioneering enterprise dedicated to facilitating global trade across diverse business sectors.