Bhartpe’s Ashneer Grover and Kotak Group lock horns over Nykaa IPO

The startup ecosystem celebrated 2021 as the year of ‘Unicorns of India’ as well as tech startups’ initial public offerings (IPOs), and the year 2022 began with headlines revolving around tech startup unicorns and their IPOs.

In the middle of week gone by, a leaked audio clip surfaced on social media platform Twitter, wherein Ashneer Grover, Co-founder and Managing Director of fintech unicorn BharatPe, and his wife Madhuri Grover, were heard conversing with an official alleged to be employed with Mumbai-headquartered Kotak Mahindra Group.

In the audio clip, Ashneer was allegedly heard to be abusive and also threatened to get the Kotak Group employee killed in an encounter over the failure to help secure financing from Kotak's wealth management division for participating in the IPO of FSN E-Commerce Ventures, which runs beauty ecommerce unicorn Nykaa, and whose IPO worth Rs 5,352 crore hit primary market between October 28 and November 1 last year.

In response to the tweet with the controversial audio clip, Ashneer tweeted that the alleged audio clip was "fake" and a "scamster" was trying to extort funds worth $240K in bitcoins, which Ashneer claimed to have refused to buckle.

However, the weekend of January 9-10 saw the controversy taking an unusual twist with a four-page legal notice from Regstreet Law Advisors, a Mumbai-based boutique law firm, surfacing and changing the flow of events so far.

The twelve-point legal notice dated October 30, 2021, was signed by Regstreet’s founder Sumit Agrawal and sent on behalf of the Grover couple via email to Uday Kotak, Managing Director & CEO, Kotak Mahindra Bank; Oisharya Das, CEO, Kotak Wealth Management; Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank; and KVS Manian, Whole Time Director - Corporate, Institutional and Investment Banking and Wealth Management, Kotak Mahindra Bank.

In brief, the Grover couple were keen to avail IPO financing to the tune of Rs 250 crore each, which Agrawal claimed that Kotak Mahindra Bank denied at the eleventh hour.

“In the event of Kotak’s failure to do so, Kotak would be liable to compensate our clients for the losses suffered on account of Kotak’s breaches, i.e. the gains our client would have made through the Nykaa IPO, by submitting an application of Rs 500 crore in the HNI (high networth individual) segment, less the cost of borrowing computed at 10 percent for 7 days,” Sumit Agrawal, Founder, Regstreet Law Advisors, stated in the notice.

The legal notice further called upon Kotak to compute ‘this amount on the listing of Nykaa and promptly pay this sum to our clients within 24 hours of listing of Nykaa stocks. “Kotak is also liable to pay the costs of this legal notice in the sum of Rs 1,00,000/- (Rupees One Lakh only),” the notice added.

According to YourStory Research, if the Grover couple had managed to participate in the Nykaa IPO by deploying Rs 500 crore, and had they received share allotment for the entire outlay, then they would have secured well over 4.44 million shares at the rate of Rs 1,125 per share – which was the allotment price of each share before Nykaa got listed on November 10, 2021.

Considering the average price of Rs 2,112.5 per share, based on the listing day open-high-low-close prices on BSE, Nykaa posted a gain of over 87.8 percent, compared to the issue price. On the basis of the day’s high of Rs 2,248.1 per share on BSE, the gain over the issue price was little over 99.8 percent.

In value terms, compared to the listing day’s average price of Rs 2,112.5 per share, the Grover couple’s Rs 500 crore stake in Nykaa could have valued over Rs 938.8 crore – a gain of over Rs 438.8 crore in a matter of less than a fortnight.

If one were to compare the value based on BSE’s listing day high price of Rs 2,248.1 a share, the Rs 500 crore share buy would have gained over Rs 499.1 crore, to be valued at over Rs 999.1 crore in total.

And going by the cost of IPO financing highlighted in the legal notice – 10 percent for 7 days – would have worked out to well below Rs 1 crore for availing the finance of Rs 500 crore. While the legal notice mentions that the Grover couple were to shell out Rs 20 crore on their part, the cost of Rs 500 crore for 7 days, at the rate of 10 percent, works out to little over Rs 95.8 lakh.

Assuming that the 4.44 million shares were not sold on the listing day, even then Nykaa IPO has been an outperformer in the 42 trading days since November 10 listing, until January 7, 2022. Compared to the issue prices of Rs 1,125 apiece, at the highest and lowest prices of Rs 2,574 and Rs 1,186 apiece, the investments would have gained in excess of 128.8 percent and 67.6 percent each.

The legal notice and the notional losses that Ashneer and Madhuri Grover have borne seem to imply that their angst against the Kotak Mahindra Bank, where Ashneer himself worked as Vice President in the investment banking team from May 2006 to May 2013, cannot be underplayed. And, interestingly, Ashneer has deleted the tweet wherein he called out the audio as “fake” and a handplay of a “scamster”.

The twist came in form of a Kotak Group statement, dated January 9, when the financial conglomerate ‘has placed on record its objections to inappropriate language used by BharatPe co-founder and MD Ashneer Grover against a (Kotak) Group employee’.

“This notice was received by us and was replied to appropriately at the time, including placing on record our objections to inappropriate language used by Mr Grover. Appropriate legal action is being pursued," Kotak Group said in its statement, which also acknowledged having received the October 30 legal notice from the Grover couple.

"We would like to confirm that there is no breach or violation by the Kotak Group in any manner whatsoever,” Kotak Group added.

Interestingly, the legal notice mentioned that Kotak’s refusal to comply with its assurances was on the pretext that it had decided not to finance the Nykaa IPO due to ‘erratic FII movements’ and ‘very high lending rates’. The notice further added that “Kotak’s statement that it has not provided IPO financing to any individual for the Nykaa IPO is blatantly false and incorrect.”

The notice also claimed that Kotak has provided the IPO financing service to Suhail Sameer, Chief Executive Officer of BharatPe itself. “Viewed in the perspective of Kotak’s excellent reputation in the banking industry and the longstanding relationship between Kotak and our clients, Kotak’s conduct towards our clients in the matter of the Nykaa IPO is particularly disappointing.”