Subhiksha promoter's firm faces payment problem
NSUNDARESHA SUBRAMANIAN
New Delhi, 8 November
Even as various government agencies are looking into the ₹ 5,600crore
payment crisis at the National Spot Exchange, another crisis,
involving thousands of investors, is brewing in Tamil Nadu.
The Economic Offences Wing (EOW) of the Tamil Nadu police is
investigating complaints against Chennai- based Viswapriya ( India)
Ltd, a company promoted by R Subramanian, the promoter of retail firm
Subhiksha Trading.
Sources familiar with the developments said 4,000- 5,000 investors,
the majority of them in Chennai and surrounding areas, had been hit by
the company's failure to make payments of interest and maturity
amounts.
Confirming the investigation, a senior EOW official said Subramanian
was produced before the court last month, but the court had ordered
his release. A group of 43 investors are said to have complained to
EOW.
Some investors said the court seemed to have taken a lenient view
because it was being seen as a cashflow/ liquidity issue, which could
be resolved in time.
Meanwhile, the company has called a creditors' meeting later this
month to negotiate and decide the terms of settlement.
Around July, Subramanian had written to one of the investors, saying,
"The issue is one of mismatch in maturities, and not one of NPAs (non-
performing assets)." He reassured investors, " The monies are wholly
safe, as there are enough and more assets to cover all dues." In this
communication, he had asked investors to contact his colleague
Rammohan for queries.
Speaking to Business Standard,
Rammohan said he handled administration. He directed further queries
to Subramanian.
A majority of Viswapriya's investors are senior citizens and elderly
widows. " Many investors are Chennai- based senior citizens who had
invested their retirement savings to earn extra percentage returns,"
said R Balakrishnan, a Chennai- based consultant.
The company is said to have received money from people of such a
profile from Chennai, Coimbatore and Tiruchi in Tamil Nadu, Bangalore
and Mumbai. Some investors have come together under the Viswapriya
Investors Welfare Association ( VIWA) umbrella. There are about 250
members, and more are joining everyday, say VIWA office bearers. The
association is trying to implead itself as a party in the high court
proceedings.
A senior citizen based in Chennai's Kasturba Nagar told Business
Standard, " My 86- yearold father, a former RBI ( Reserve Bank of
India) officer, had invested ₹ 4.5 lakh in secured debentures offered
by the company. My mother is 81. She had debentures worth ₹ 4 lakh.
They had put money in Viswapriya debentures, as these offered interest
rates above bank rates." Another senior citizen awaiting payments
said, " The company seems to be facing some cash flow issues. The
promoter met the investors last week and assured interest payments by
January 2014." Both the investors sought anonymity. They are confident
the company will repay their dues.
The trouble seems to have started in April, when interest payments
weren't made on time.
According to the repayment plan submitted by the company and
circulated among investors, it would begin interest payments in 2014.
The principal amount is proposed to be repaid in three instalments of
20 per cent, 30 per cent and 50 per cent, spread through 33 months.
In the past, RBI and the Securities and Exchange Board of India have
taken action against Vishwapriya Financial Services, another group
firm. The names of this firm and the promoter figure in
watchoutinvestors. com, an investor awareness website.
Tamil Nadu police probing investor complaints against Viswapriya;
company says rescheduling payments due to cash flow mismatch
"Viswapriya ( India) Ltd is a two- decade- old company and was the
pioneer in introducing asset securitisation and IPO finance in the
country in the nineties and has a long track record of innovation. It
has been raising monies by secured debenture issuance for nearly 10
years. Any company registered under the Companies Act can issue
debentures and accept deposits. As on January 31, 2013, the issuance
of debentures was ~ 125 crore. In view of present mismatched cash
flows, a rescheduling of the interest and principal payments due on
the debentures, without any haircut for investors and with commercial
interest for delayed payments as well, has been sought through the
high court according to Section 391 of the Companies Act, 1956, and
the same is under process presently. The company has receivables both
from lending and from participation in property transactions. A small
fraction --- less than one per cent of the debenture holders --- had
made complaints to the Police ( EOW) in respect of delayed payments.
When coercive action was sought to be taken by the EOW in violation of
the order of the high court, the same was dropped under intervention
of the high court. The rescheduling is akin to CDR, or debt-
restructuring by banks, and as such is only to overcome the mismatch
in cash flows. There is no plan to raise any money except some small
infusion of capital, according to the scheme before the court, as the
cash flows of the company itself would meet the obligations under the
scheme, as the delay is only a timing issue on cash flows.""
RSUBRAMANIAN
Promoter, Viswapriya ( India) Ltd
RSubramanian
Holcim- Ambuja deal gets proxy boost
NSUNDARESHA SUBRAMANIAN
New Delhi, 8 November
Call it a proxy war. International proxy advisory firm ISS Proxy
Advisory Services has recommended shareholders vote in favour of the
Holcim- Ambuja Cements restructuring deal. This is in contrast to the
recommendations of three local proxy advisory firms that had termed
the deal an " anti- minority investor move".
In July, the board of Ambuja Cements, a Holcim subsidiary, had
unanimously approved a proposal through which it would first acquire
24 per cent stake in Holcim India from Holderind Investments Ltd,
Mauritius, for ₹ 3,500 crore in cash, followed by a merger of Holcim
India into Ambuja. These intragroup transactions will result in Ambuja
holding 50.01 per cent stake in ACC Ltd.
Ambuja Cements is seeking shareholder approval for the enabling
resolutions in an extraordinary general meeting to be held on November
19.
In a shareholder recommendation issued last week, ISS, an MSCI unit,
said, " The transaction merits shareholders' support." ISS said it had
met the Holcim management in September and listened to the explanation
of the company's rationale behind the move. It found the restructuring
strategically advantageous and economically reasonable. It added the
restructuring wasn't harmful to minority shareholder interests, as
projected by analysts and Indiabased proxy firms.
The ISS note said, " The deal is structured with certain safeguards to
minority shareholders, as both the proposed acquisition and the
proposed merger require a ' majority of minority' vote, which is not
required under the relevant laws in India. ACEM ( Ambuja Cements) and
Holcim representatives explained to ISS they had voluntarily decided
to allow minority shareholders to determine the outcome of these
resolutions.
Given the above considerations, the transaction merits shareholders'
support." The note added, " The company's shares fell as much as 10.6
percent after a full trading day, after the announcement. A number of
analysts have viewed the deal structure as disadvantageous to minority
shareholders, considering the substantial cash outflow from the
company to the promoter group and the increased stake in the company
by the promoter group, after the merger.
However, the investors' concerns over the deal may have been allayed
following the company's road show with shareholders and confirmation
that the two- part transaction would both require majority votes of
minority shareholders to be passed.
From the announcement to the time of this analysis ( October 31), the
company's share price has recovered its loss, closing at Rs 192.9, up
12.8 per cent since the announcement and two per cent since the day
before the announcement." On the contentious issue of cash outflow of
₹ 3,500 crore from Ambuja Cements, ISS said, " While the transaction
would entail cash outflow of Rs 3,500 crore ( about 90 per cent of the
company's cash reserves), the balance sheet of the enlarged group
would remain sound. The enlarged group will remain in netcash
position, with no long- term borrowings, given ACC's own cash balances
of ₹ 3,000 crore as of FY12." It added, " Based on the three- year
average dividend payout of ACC at ₹ 30 ashare, the company's potential
dividend income from 50.01 per cent stake in ACC would amount to Rs
280 crore, and ACEM, on a stand- alone basis, has healthy cash flow
from operations as well."
In July, the board of Ambuja Cements, a Holcim subsidiary, had
unanimously approved a proposal through which it would first acquire a
24 per cent stake in Holcim India
New norms for foreign banks point to more reforms: Fitch
BS REPORTER
Mumbai, 8 November
Rating agency Fitch on Friday said the Reserve Bank of India's new
norms for foreign banks operating in India signalled aspate of reforms
in the banking sector.
Though these guidelines were unlikely increase the banking sector's
competitive landscape, the central bank's steps--- nudging foreign
banks to form subsidiaries--- recognised the need for greater foreign
participation in the growing Indian economy, Fitch said. Wholly- owned
subsidiaries of foreign banks will have considerable freedom to open
branches, list on Indian exchanges and participate in domestic mergers
and acquisitions.
Fitch said in theory, these changes were aimed at encouraging large
foreign banks to widen their business profiles in India. However, it
added the regulatory treatment, which was nearly equivalent to that
for domestic banks, would also lead to challenges.
Meeting priority sector lending norms ( 40 per cent of net bank
credit) and ensuring at least 25 per cent of all new branches were
opened in un- banked areas would be difficult for foreign banks.
Foreign banks with at least 20 branches are obliged to comply with the
broad and sub- targets under priority sector lending norms, and have
until FY18 to do so. However, their ability to achieve this remains
largely untested; at times, even Indian banks find it difficult to
meet these targets consistently.
HSBC gets notice on handling of actor's portfolio
REGULATOR ACTS AFTER
KRISHNAMOORTHI CRIES FOUL
|Suchitra Krishnamoorthi ( pictured)
accuses HSBC of mismanaging her capital |Alleges that bank missold
products, churned her portfolio, resulting in losses |Stock market
regulator sends show cause notice to HSBC over the matter |Sebi had
given itself more powers to punish misselling by bringing it on a par
with market manipulation and fraud |It has also brought individual
accountability to distribution through unique codes for employees
selling the products BS REPORTER Mumbai, 8 November
The Securities and Exchange Board of India ( Sebi) has sent a
showcause notice to Hong Kong and Shanghai Banking Corporation ( HSBC)
over allegations of misselling and mishandling of the portfolio of
actor and singer Suchitra Krishnamoorthi.
The matter relates to accusations by Krishnamoorthi over alleged
misselling of products and mismanagement of her assets. HSBC has
received the showcause notice, said a person familiar with the matter.
A showcause notice is a preliminary notification asking why action
should not be taken against an entity.
An email to a Sebi spokesperson requesting comment did not elicit a
reply. When contacted, an HSBC spokesperson said: " We cannot comment
on matters related to customer issues." Earlier, Moneylife magazine
had reported on Krishnamoorthi's complaint against HSBC. Of late,
regulatory organisations around the world, including Sebi, have been
taking complaints of mis- selling very seriously.
In April- May this year, a meeting of Asia- Pacific regulators from
Chinese Taipei ( Taiwan), Hong Kong, Japan, New Zealand and Singapore
discussed issues on investor protection and tackling mis- selling of
capital market products.
In December 2012, Sebi had brought misselling under the purview of the
Prohibition of Fraudulent and Unfair Trade Practices regulations,
which cover offences such as market manipulation. The regulator
empowered itself to prohibit entities found to be involved in such
activities from dealing in the securities market.
Earlier, Sebi had introduced the concept of employee unique
identification number ( EUIN), which helps identify the employee who
approaches aparticular customer. This becomes useful while tracking
down the individual employee who missold a product. This was not
possible before because all employees would use the corporate entity's
identification number, common to all its employees. Krishnamoorthi had
an account with the bank from the early part of the last decade and
was allegedly advised to invest in a wide variety of financial
products. She had alleged her portfolio was repeatedly churned,
resulting in losses.
Most of this reportedly happened before Sebi's ban on entry loads for
mutual funds. Entry loads were used to pay commissions to distributors
whenever an investor puts his money into a financial product. This
created an incentive for distributors to ' churn' portfolios, by
repeatedly exiting and reinvesting capital in different products to
earn commission from the same. HSBC had a total income of ₹ 185.88
crore from the sale of life insurance, non- life insurance and mutual
fund products, according to its annual report for the financial year
ending in 2013. Krishnamoorthi could not be contacted for her
comments.
--
CS A Rengarajan
9381011200
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