Open Offers and Suspected Fraud- The Case of Gujchem Distillers
Backstory: Gujchem Distillers was an sugar processor based out of Ahmedabad that shut the operations of sugar processing and alcohol manufacturing in 2022 to become a trading entity and functioned as a shell company listed on the exchanges. It has seen increased interest in the markets eversince a Dubai based company ZR2 Holdings gave an open offer to acquire its shares from the open market. The share price has risen from below Rs. 100 before the offer to more than Rs. 400 in less than a year, increasing investor interest.
However, here we dig into a few of the red-flags that this transaction has to warn investors of suspicions I have as an analyst.
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Gujchem Distillers has seen an increase in promoter holding to 64% after a round of preferential shares were issued and allotted. They have also managed to raise 250 Cr capital. I first came across this story early in May and was all over it. Bought some quantities too, however I am writing about a few things that made me skeptical of the story.
I am writing this so that investors can be careful about approaching this stock and don’t get trapped without knowing the risks.
The website is a basic bunch of ragtag stock images that have been put together to show interest in agriculture. It doesn’t prove any real operations or business interests.
2. Acquiring Promoter Experience is Highly Questionable:
The promoter, Jimmy Olsson has worked in Aldia Capital as a director before this. Aldia capital, according to Zauba Corp, is engaged in financial intermediation, which is completely at odds with the sugar and related work that ZR2 Group seems to be interested in.?
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Funnily enough, Google Jimmy Olson without the two ‘S’s and you’ll find it's actually a fictional character which has had some duel with Superman.
There’s no information to be found on Nilesh Jain, who is the other director in ZR2 Group or on Shahjee Bhagde, who was the other director on Alida Capital, except that the two of them are registered with MCA.
Open Offers are all about the networth and prior experience of the promoters to turn small companies around. In my opinion, these promoters don’t have what it takes to turn a company around.
3. Allottees of the Preferential Issue don’t have good antecedents either:
One of the rather interesting allottees of the preference issue is Mr. Manish Kishor Ruparel. Mr. Ruparel has been accused of creating artificial volumes and indulging in malpractices in the shares of Hindustan Bio Sciences Ltd. SEBI registered an enquiry against him in 2004.
He got out of the case by paying a consent amount of 4 Lakh Rupees in 2008. While I am not accusing him of any wrongdoing, but this doesn’t inspire great confidence in the company either.
The antecedents of the other investors involved in the preference issue are also very difficult to glean through online sources, which makes it highly suspicious.
The fact that most of the people involved in this transaction have nothing to do with sugarcane or alcohol production and seem to have questionable antecedents is the biggest red-flag in this transaction.?