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ILFS AND THE NEGLIGENCE OF LIC , SBI ETC.

Akhilesh Bhargava

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ILFS

To state the very obvious, the ILFS scam is a giant one, due to failure and malpractices by one and all, at the highest management levels. Its ongoing litany of debt defaults is the culmination of rampant mismanagement and misreporting, year after year, to conceal its rotten state of affairs. So extensive is the size of the misconduct, that top multiple agencies/authorities are investigating its state of affairs to unravel the truth, which include the RBI, the SFIO and the MCA. Alarmed by the state of its misreporting, not just of its finances/state of affairs, but its number of subsidiaries too, that the new board of directors, headed by Uday Kotak, has ordered a fresh audit, to ascertain its true state of affairs. It is very clear that its audited financial statements have been deliberately window dressed to conceal the truth. The very basics in this case have been supressed, viz the number of its subsidiaries, the size of its overall borrowings, its earnings and losses, the laundering of funds and the contingent liabilities.

While it is clearly a case of blatant misuse/misappropriation of funds under the cleverly cultivated image of being a quasi government entity, which ILFS was not, an extensive blame game is on. Though the negligence and complicity of the independent directors, who are persons of eminence is crystal clear, they yet very audaciously deny any wrong doing and directly blame the management of ILFS, led by its chairman Ravi Parthasarathy. Interestingly, its former highly paid MD/VC Hair Sankaran denies any wrong doing, mismanagement or misgovernance and says that all the reports are biased and wrong. The credit rating agencies and the statutory auditors of ILFS, who clearly facilitated the malpractices at ILFS are silent for obvious reasons.

The former VC/MD Hari Sankaran, who has been a key player in this entire ILFS saga, not only denies any wrong doing, but also blames the shareholder nominee directors of LIC, SBI etc for the failure and downfall of ILFS. In his reply petition to the NCLT he clearly mentions that not only were these directors aware of the entire state of affairs of ILFS at all times, but that by their indecisiveness and inaction, they blocked all management efforts to sell its subsidiaries and raise funds, even at a time when there were clear offers in hand, which included the merger offer with Piramal in 2015 and the 2017 offer of Lone Star, a US based fund to acquire one of its subsidiaries for Rs.6300 crores. They took no decision on monetising/sale of assets investment offers, capital raising plans or external acquisitions, which have led to the collapse of ILFS. He says that though they were informed in the board meeting on 31st July, that if a rights issue was not done immediately, ILFS would default on payment, they yet took no decision or action.

Though Hari Sankaran is under a huge closed and comes with no clean past, his allegations of inaction by the nominees of LIC, SBI etc are worth pondering. These institutions which manage huge public money are known to be negligent shareholders, who have been careless and not vigilant about shareholder interest, which they fail to protect. The poor state of PSBs in which LIC is a large shareholder, stands unfortunate testimony to this reality. If the independent directors of ILFS are to be blamed, so is the case with the shareholder directors, who bear the blame for being careless and irresponsible about the safety/security of the public funds that they manage.

 

Business Tit-Bits

Siphoning of Sun Pharma Funds

Akhilesh Bhargava

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The importance of whistleblowers has been increasing recently in corporate India. Taking the example of Chanda Kochhar and how powerful and influential she was and the fact that she was brought down by a whistleblower, we can get a glimpse as to their importance. Another example is Dilip Shanghvi, MD of Sun Pharma. He was thought to have a squeaky clean reputation until the recent letter by a whistleblower revealed transactions involving a conflict of interest, related party transactions, auditors being compromised and other charges against him, his brother in law and his company. Related party transactions to the tune of Rs 5800 crore have been alleged. What Independent Directors, Auditors and Rating Agencies failed to point out, the whistleblower letter did. FIIs and DIIs are pulling out of the company and the price of the stock is plummeting in response to this.

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Business Tit-Bits

The Burden of Infrastructure NPAs

Akhilesh Bhargava

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As the country is the midst of an NPA crisis, we find that resolution are hard to come by. The only resolutions are from the Steel and Metal sector. The sector which forms the crux of the NPA crisis in India is the Infrastructure sector which accounts for roughly 25% of total NPAs. Infact, so serious are the NPAs in this sector that 1/4th of loans given turn bad and total around 2.5 lakh crore Rs. Loans given in the period 2009 to 2012 were found to be the worst. Infrastructure loans include loans given for construction of roads, bridges, highways, ports and power sector loans. Corruption, government not living up to its end of the deal and banks rushing to give loans without going through boanfides of the firm are the main reasons. The infrastructure sector bad loan problem has turned into a chronic one and no resolution worth talking about has taken place.

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Business Tit-Bits

The Diamond Cheats

Akhilesh Bhargava

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We take a look into the glamorous diamond industry in India, said to be the largest in the world. Being a very close-knit one in terms of belonging to a particular community and often only within family members, the scope for manipulation becomes easy. The diamond industry has become tainted with bogus exports, money laundering practices, massive NPAs, round-tripping of money etc. Names such as Jatin Mehta, Mehul Chokshi and Nirav Modi have become synonymous with the industry and hence banks are now restricting their exposure to the sector and implementing tougher conditions for lending money to the beleaguered diamond traders.

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