Categories
Observations

How ICAI President Subodh Kumar Agrawal let down Guj NRE Coke Shareholders

Subodh Kumar Agrawal is the President of the Institute of Chartered Accountants of India.He is also serves on the board of Guj Nre Coke .

Now, the auditors of the Australian Subsidiary (Guj Nre Coking Coal Ltd)  is Grant Thornton.Unlike Indian auditors( see here & here), they seem to have integrity.They refused to give an opinion on the accounts for the year, citing doubts over company’s ability to survive as a ‘going concern’, and inadequate information about its ability to repay debts.

The Australian unit has reported a loss of A$112 million and faces a working capital deficit. It has breached loan covenants, owes money to creditors and has not provided any evidence to indicate that it has the ability to raise money to replace existing debts, the auditor says.

The firm owes about A$27.8 million to its ultimate parent and there are doubts whether that money can be recovered. There are similar issues over contingent liabilities, the audit firm has said. Gujarat NRE Coking Coal has to pay A$487.8 million of debts within the year.-from ET

 

Now what is shocking is that the true state of affairs of the Australian Subsidiary were hidden from Indian shareholders.The consolidated statements year-ended March 2013 have been prepared only on the basis of unaudited accounts of the subsidiary, which actually accounts for 63% of assets of the Kolkata-based NRE Coke.

Now as per regulatory filings made by Guj Nre Coke to Indian Stock Exchanges,

The Consolidated Audited Financial Statement of the Company for the financial year 2012-13 were reviewed by the Audit Committee at its adjourned meeting held on 30th May’2013 and the same were adopted by
the Board of Directors at its adjourned meeting held on the same date.The above Audited Consolidated Financial Statements has been prepared based on the available Management Approved Financial
Statements of all the Australian Subsidiary Companies including Gujarat NRE Coking Coal Ltd., which has also filed the same results to the Australian Securities Exchange (ASX).

Now, Indian shareholders can be forgiven for thinking that even the overseas subsidiary accounts were audited.Notice the clever wording “Management Approved Financial Statements of Australian Subsidiary Companies”

So which genius headed the Audit Committee which did this masterful coverup?Well, none other than the much respected and much loved ICAI President Subodh Kumar Agrawal !

So, repeat after me, dear readers,”Investors in Indian Equities believe the audited accounts at their own peril “!

Categories
This is India !

Don’t mess with Srinivasan’s astrologer

This post belongs to my This is India ! series.

You can’t mess with the fates. Or with astrologers. Srinivasan is a deeply superstitious individual. Meetings always happen on floor 11 of a prestigious Chennai hotel. Even the timing of the bus leaving the hotel is planned. The start of the AGM is also always at a particular time. Before every CSK match, there is a tantric triangle made outside the boundary line. He even refused to let the Indian team wear their new kit ahead of the 2012 T20 World Cup and stick to the old kit that they wore when they won the 2011 World Cup. The reason was probably a well-known astrologer and vaastu consultant in Chennai called Vaastu Venkatesan. They say that former India captain Kris Srikkanth introduced the astrologer to AC Muthiah and later to Srinivasan. The astrologer, according to reports, makes almost Rs 2 crore a year off Srinivasan-from Firstpost

Categories
Video

Apple struggles with market share in India

Categories
Links

Linkfest:1 Oct,2013

Some stuff that I am reading today morning:

Ratnakar Bank finds profits where others fear to tread (Reuters)

The world’s cheapest emerging market (DailyReckoning)

Is NSEL a case of principal-agency problem? (Mint)

The story behind 0% interest EMI schemes (FE)

FIR against NSEL/FT promoters,directors and staff (BS)

Farewell, Lalu Prasad (Firstpost)

10 surprising economic trends that rule the world (Quartz)

10 terms investment pros use to raise money (TRB)

Sharing economy is here to stay (LATimes)

London’s hot Indian restaurant (Bloomberg)

Categories
Observations

Mr.Farouk Irani has been cooking his books since 1980s !!

I had earlier blogged about how Indian investors should believe audited statements at their own peril.

Now, here is another startling case of how auditors colluded with promoters to commit fraud

A fortnight ago, chatting with bankers at Chennai’s Haddows Club, Farouk Irani, a pioneer in India’s leasing business, admitted that the company he led for decades along with industrialist friend AC Muthiah, has a hole of Rs 1,000-crore in its balance sheet.

Assets worth only Rs 200 crore has been created by First Leasing Company of India, where Irani has been the managing director since 1973, out of bankfinance of more than Rs 1,200 crore.

When the team of financiers led by a senior official of State Bank of India asked Irani where the remaining funds were deployed, he could not give any ‘satisfactory reply”. Stunned bankers told the company to close accounts with all banks outside the consortium, a source familiar with the development told ET.

The person also said that there were question marks on the audited financials of First Leasing, a Chennai-based listed company. The meeting with bankers took place a few days after the Reserve Bank of India barred the company from doing any business until further orders. “We confirm an RBI audit is under way of our accounts and until the audit is complete we cannot presuppose what the numbers are,” said Irani, responding to ET’s email query. When told that there are suspicions that funds have been diverted by the company’s management to unrelated activities, Irani said, “There has been no diversion of funds. Once the RBI audit is over it will reconfirm money was not diverted for any improper purpose.

Funds have only been committed for the benefit of the company’s stakeholders which would include payment of interest to the banks, the income tax, sales tax, salaries to the staff etc.”

Sarathy & Balu was the company’s statutory auditor for the financial year 2012-13 while MK Dandeker & Co was the internal auditor. NR Sridharan, partner at Sarathy & Balu, could not be contacted despite repeated attempts.

The company has been asked by its bankers to immediately open an escrow account with SBI and, collect and submit post dated cheques given to customers to SBI for credit, besides furnishing a list of receivables and assets.

According to banking circles, the company’s troubles started during the 1980s when Mercantile Credit Corporation, a group company of MAC, founded by Muthiah’s father late MA Chidambaram, ran into trouble. (Muthiah is the chairmanemeritus of Southern Petrochemical Industries)

In 1988, First Leasing had to pay out Rs 170 crore to depositors, borrowing money at a higher rate, when MAC faced financial difficulties. The tight money condition of the 1990s worsened things and later Rs 65 crore was lost in “misguided transactions” (but this amount was recovered after a period of time). The payment of Rs 170 crore, however, was never reported to banks.

The CEO of another south-based financial services group told ET that First Leasing also lost out as it failed to change with time and bring in new financial investors like private equity houses. More recently, it has been borrowing from banks to repay dues. The members of banking consortium include SBI, IDBI,UCO, State Bank of Travancore, Syndicate, Vijaya, State bank of Patiala, ICICI, IndusInd, Axis, Bank of Maharashtra, State Bank of Mysore, HDFC, and Catholic Syrian. The combined credit limit extended by them is.`1,322 crore and the present standing is Rs 1,211 crores-from ET

 

So basically, the books were cooked since the 1980’s !!Also, find it amusing that veterans felt that the solution to the hole in the accounts was to bring in private equity investors !!