Patanjali Foods to launch FPO in April 2023

In a market that is almost starved off mainboard IPOs and FPOs, the latest announcement from Patanjali Foods comes as a whiff of fresh air. Patanjali Foods was formerly known as Ruchi Soya with its focus on soya, oil, and other food products. Over time, the originally company went bankrupt and was acquired by the Patanjali group; which is owned by the high profile Yoga master, Baba Ramdev. Just last year the Patanjali group had done a public issue of Patanjali Foods to be able to meet the SEBI criteria of minimum public holding requirement. Now, Patanjali Foods plans to launch another follow-on public offer (FPO) to start the process of reducing the stake of promoters in the company to below 25%.

Recently the NSE and the BSE had announced a freeze on the promoter shares of Patanjali Foods, owned by the Patanjali Group led by Baba Ramdev. stake However, Baba Ramdev has informed the media that this move would not have any material impact as the promoter was already under lock-in till the 08th of April 2023. He also underlined that the order would not have any material impact on the company or on the holdings of the Patanjali group in the company. The company had come out with an FPO last year and there is the one year lock in that is automatically applicable till the first week of April this year. He also assured that the group is in the process of meeting these public shareholding guidelines.

As per the latest plans, in the current round, the Patanjali group will be diluting around 6% stake in Patanjali Foods. In fact, Patanjali group had acquired Ruchi Soya under the National Company Law Tribunal (NCLT) insolvency proceedings and had later changed the name of the company from Ruchi Soya to Patanjali Foods to give the new image of a changed management and the wider business model of the company. However, Patanjali Foods is non-committal about the timing of the FPO and have only assured the market that the process for FPO would commence in the new financial year i.e., from April 2023 onwards. Patanjali Foods confirmed that it had lined up offshore and domestic investors who were willing to absorb the stake diluted by the Patanjali group under the SEBI stipulations.

As per the details provided by the exchanges and the Patanjali Group, the two stock exchanges (BSE and NSE) had frozen shares of 21 promoter entities. This included the Patanjali Ayurveda group as well as the personal holdings of Acharya Balkrishna, who is the managing director of Patanjali Ayurved. Acharya Balkrishna, along with Baba Ramdev, is the co-founder of Patanjali Yogpeeth Haridwar. The reason for the freeze was cited as the failure to meet minimum public shareholding norms, as stipulated by the Securities & Exchange Board of India (SEBI). This shareholding requirement is captured quite explicitly in the SCRA also.

In fact, there is a specific Rule 19A(5) of the Securities Contracts (Regulation) Act (SCRA), which clearly mandates that any listed company must necessarily have a minimum public shareholding (MPS) of 25%. This is the holding excluding the promoter and related party holdings, which are seen as distinct from public holdings. After the March 2022 FPO by Patanjali Foods, the minimum public shareholding of Patanjali Foods had risen to 19.18%. However, this is still 5.82% short of the basic minimum level of public shareholding stipulated. That was the trigger for the freezing of the shareholdings of the Patanjali group and related entities in Patanjali Foods. The original deal was done in September 2019.

Let us also look at what is the rule in the event of NCLT insolvency resolution. Under the resolution plan implemented and acquired by Patanjali group, it was stipulated that the public shareholding of Patanjali Foods (formerly Ruchi Soya) be raised to 25% within a period of 3 years from the date of resolution. Now 3 years have already elapsed in September 2022, but the public shareholding in Patanjali Foods is still about 5.82% short of the minimum public shareholding threshold. The company has brought down the promoter shareholding from 98.87% to 79.18%. The FPO is expected to increase the public shareholding to 25%, although the specific dates are yet to be announced.