EbixCash Fined INR 6 Lakh For Flouting SEBI Norms

The Securities and Exchange Board of India (SEBI) has slapped a total fine of INR 6 Lakh on troubled fintech company Ebix’s two entities for misrepresentation of facts and disinformation in its IPO documentation. 

In an adjudication order dated December 19, the market regulator said it found EbixCash Limited and Ebix Singapore Pte. Limited in violation of multiple SEBI public issue rules, including Schedule IX (which prescribes norms for public communications and publicity materials for issuers) of issue of capital and disclosure requirements (ICDR) norms. 

The market regulator also noted that crucial information, including regulatory actions and financial plans, was omitted or inadequately disclosed in EbixCash’s draft red herring prospectus (DRHP) filed in 2022.

A key basis of the penalty was EbixCash’s press release in response to the alleged inflation of revenue numbers by its US-based parent Ebix Inc, brought forth in a report by Hindenburg, as well as a ‘letter of displeasure’ issued by the Reserve Bank of India (RBI). 

For context, in 2022, short seller Hindenburg released a report on Ebix and flagged the company’s “massive near-term debt load” amid rising interest rates at the time. Hindenburg also claimed that a “substantial portion” of EbixCash’s gift card revenue was “non-existent”. It added that the company had cycled through seven different auditors since 2004, “a classic hallmark of accounting irregularities”.

Subsequently, Ebix approached a Delhi Sessions Court, which blocked access to the reports by Hindenburg Research in the country. 

In its order, SEBI also said that the company provided incorrect disclosures about the impact that the RBI’s “letter of displeasure” (dated March 21, 2023) and the Hindenburg report had on its revenues and issued an incorrect press release (dated July 6, 2023) regarding the numbers. `

The regulator said that while Ebix’s press release claimed that the restatement of revenues on account of the RBI’s letter was “numerically immaterial”, the revenue figures restated saw a reduction of over 64%.

“The letter (from RBI) directed the issuer (EbixCash) to amend cobranding agreements with PPI issuers and restate revenue recognition on a net basis. The revenue restatements indicated substantial changes (64.35% to 75% reduction) for FY2021–2023,” the SEBI order read. 

Further, in its press release, Ebix claimed that it had made changes in line with regulatory guidance from Indian regulators and stated its payment solutions revenues on a net basis. However, SEBI said that the company failed to specify the letter of displeasure from the RBI in the said press statement. 

“Despite such a material impact on reported revenues, the press release failed to adequately disclose these changes or their significance, which is a key requirement under Regulation 42 read with Schedule IX of the SEBI ICDR Regulations,” the order added.

On top of this, SEBI said that the fintech company’s failure to obtain approvals from BRLMs (book running lead managers) before issuing the press release further compounded the violations.

Overall, SEBI highlighted three instances of miscommunication from the company following its IPO bid. 

• Miscommunication regarding outstanding arbitration matter pending with Singapore International Arbitration Centre
• Improper disclosure of the actual objects of EbixCash’s IPO
• Incorrect disclosure of information with respect to Hindenburg report and court proceedings related to the matter

Considering all the facts and circumstances of the case, SEBI slapped a penalty of INR 6 Lakh. The companies have been directed to pay the amount within 45 days. 

EbixCash filed its DRHP with SEBI to raise INR 6,000 Cr through a fresh issue of shares in March 2022. However, the public issue never materialised. 

On the other hand, the alleged corporate governance lapses have sent the company’s US-based parent on a downward spiral in the past few years. In December 2023, its Nasdaq-listed parent Ebix Inc filed for bankruptcy in the US after defaulting on a $617 Mn loan and several covenants associated with this debt.

Eventually, BSE-listed Eraaya LifeSpaces acquired Ebix Inc. and its subsidiary EbixCash in August 2024 for $151.577 Mn.