On Kochhars & Videocon is the ICICI Bank Board itself an NPA?

Outset Disclaimer

Neither my family nor me are shareholders of ICICI Bank or Videocon.

• I do know the Kochhars only on a casual greeting basis when we came across each other on ‘Open & Speech Days’ at the School where our children studied. I did however 14 years ago, in and around 2004, meet up with Deepak Kochhar, at his request through a good common friend, at the Cricket Club of India Swimming Pool Cafe in Mumbai to explore the possibility of advising on his Family’s Equity Portfolio. It did not happen as we disagreed on how India was taking off. I had opined that the next few years would be great & they were, with GDP at 9% & Markets zooming in the 2005-2007 period. There was no further meeting after that  
• In the 1990’s I had a private audience for just five minutes with Mr Dhoot of Videocon, at his request, in his car after he had attended a Rotary Meet in Ahmednagar to hear my address. It was a courtesy brief engagement
• In the past I have, at the request & invitation of ICICI Bank, conducted a two day Securities Allocation & Portfolio Management Training Workshop in Mumbai for their Private Wealth Management Clients Group Managers from across India

On Kochhars & Videocon Link Controversy is the ICICI Bank Board itself an NPA? 

Caesar’s wife must be above suspicion

It’s always got to be Substance over Form, so we’re drilled into, while studying for Professional Accounting & Auditing Qualifications

So let me state that the Kochhars & the Dhoots of Videocon go back a long way into the 1990s… more on this later below 

So while the Form may be legit, albeit through a chronological maze of shareholdings changes & transactions, the substance of these have come into public glare recently on the alleged quid pro quo between Kochhars & Dhoots

While it remains to be established by investigative agencies & SEBI on any violation of disclosure norms & any conflict of interest and this quid pro quo between the Kochhars & Videocon on the Consortium Loan of Rs 3250 crs extended to Videocon by ICICI Bank in 2012, I raise this question to the ICICI Board as am concerned & angry to say the least, with this ‘Sense of Entitlement’ that continues to prevail in the upper echelons of our Institutional, Banking, Corporate, Political & Bureaucratic World. There are figuratively & often even literally Marriages of Convenience in these circles to strengthen the nexus. Perhaps a Competitor of ICICI Bank, like alleged even in controversies before, is again at play here… but the allegations are serious enough & the Bank’s Board has to be seen to really get behind all this before giving a clean chit. The Perception is that they are not doing so & the intent for this comes into question… more so after the response of the Bank’s Chairman on the current controversy to the Indian Express raises more questions than answered.

ACT ~ Accountability, Conscience & Transparency 

For me the Simple Question in this Matter that begs an answer is this :

Is ‘D’ a ‘Duh’ to give & forgive Rs 64 crs ?

Far from it, so there has to be more to it 

Let me spell out the chronological scenario to put it in perspective “

• Why would ‘D’ of ‘V’ in Jan 2009, within 20 days of his entering into a 50:50 JV ‘N’ with ‘K’, completely sell of his 50% in ‘N’ to ‘S’ at par & also sell of at par his own private company ‘S’ holding of 9990 shares of FV Rs 10  to a ‘third party’ (this would be his associate ‘M’), as he defends his actions to Indian Express stating “… relinquishing my right, title and interests in the said shares, giving up control and management of Supreme Energy and completely disassociating myself from both the Companies all on the same day”? 
• Why would then ‘D’ of ‘V’ give Rs 64 crs to  Company ‘S’ from his listed ‘V’ or any other of his entities  to give to ‘N’ alleged to be a Loan which was then converted to an allotment of zero coupon Fully Convertible Debentures allotted in March 2010 & finally converted to shares in March 2016?
• As on March 31, 2015 ‘S’ held 47496 shares in’N’ apart from the Rs 64 crs FCDs. These shares should be the 24996 shares sold by V to S in Jan 2009 as above + 22500 shares sold by ‘P’ owned by K Family to ‘S’ in June 2009
• In April 2012, ‘I’ Bank in a consortium extended Rs 3250 crs lending facility to the ‘V’ Group of ‘D’
• In September 2012 ‘PE’ Trust of the K Family purchased at par FV 10 all 9990 shares of ‘S’ from ‘M’ (See above to recollect… the same shares sold in Jan 2009 by ‘D’ to ‘M’ at par)… this gave ‘K’ Family ownership of ‘S’
• In April 2013 the ‘PE’ Trust of K Family subscribed at par Rs 10 to a further 80000 shares of ‘S’ which held held 47496 shares in ‘N’ apart from the Rs 64 crs FCDs in ‘N’. This is the @ Rs 9 lakhs Equity investment in ‘S’ by  the ‘PE’ Trust of K that is the accusation levelled at ‘D’ & ‘K’ as being a pittance of a price for handing over ‘S’ to ‘K’ Family’s ‘PE’ Trust
• So as it stands we need to question & investigate the status of the original Rs 64 crs given by the listed ‘V’ or a ‘D’ Entity or any other Entity to ‘D’s originally owned private company ‘S’. Was it a loan to ‘S’? & if so has it been returned ? or was it an investment in Equity in ‘S’? which then does not have to be returned… of course this money was in turn given by ‘S” to ‘N’ as above… this probably also explains why ‘D’ of ‘V’ sold of his 9990 shares in ‘S’ in Jan 2009 itself to an associate ‘M’ so as not to disclose the transaction as a related party in the books of listed ‘V’ when ‘V’ is alleged to have later in 2009/10 extended Rs 64 crs to ‘S’… I went through the 2009/10 Annual Report of ‘V’ & there is no disclosure of any such Loan or Equity Investment in ‘S’…. so was it routed through another company of the ‘V’ group or one of ‘D’s private companies or was it some other entity ? 

There are other Alphabets in play too (these are elaborated later below), but the above should suffice to conclude that :

• Rs 64 crs invested in ‘N’ by ‘S’ in 2009/10  finally through FCDs allotted in March 2010 by ‘N’ was converted to Equity in ‘N’ in March 2016 & as of date both ‘N’ & ‘S’ are owned by the K Family…. so ‘N’ does not need to repay this to ‘S’…. but what about ‘S’ having to repay this to listed ‘V’ or any other ‘D’ related entity  or any other entity if it was indeed given as a loan? 
• The ‘PE’ Trust of the K Family bought out ‘S’ at a pittance only in September 2012 after ‘I’ had sanctioned &  disbursed  consortium lending of Rs 3250 crs to the ‘V’ Group of ‘D’

To jog your memory there is an age old link between the Kochhars & Videocon even before they initiated this 50:50 JV in 2008 in NuPower Renewables

Did you know ?

• The Kochhar Brothers, Rajiv & Deepak ran a listed company in the late 1990’s called Credential Finance Ltd. Rajiv was the Executive Chairman while Deepak was the Managing Director. It was last traded in December 2001 on BSE & BSE Records show it as compulsory delisted only last year on August 23, 2017…such a delisting,as different from a voluntary delisting, as per SEBI directives involves barring promoters from raising monies from capital markets for 10 years besides other stipulations. It was incorporated in 1992 as per MCA Records & till October 1, 1996 it’s name was Bloomfield Builders Ltd. In 1997 it’s Equity Capital was Rs 5.63 crs of Face Value 10 & it had declared a 6% dividend for 1996/7. If I remember correctly, the Shareholders included many top industrialist groups at the time had subscribed to shares at obscene premiums at the time when Income Tax Regulations to justify Issue Prices & Valuations were not in existence (these came in 2011/12). Do I need to spell out why ! Videocon directly or indirectly held a stake & it is important to note that Venugopal Dhoot’s right hand man & group financial advisor, S K Shelgikar was on the Board of Credential Financial. I recollect Credential had even sponsored a Squash Tournament as the Kochhars were avid Squash Fans & Players at the National Level. Rajiv has since promoted the Avista Advisory Group based in Singapore & India while Deepak has set up the NuPower Renewables Group

SEBI’s earlier ‘Panga’ with Videocon & Hindustan Lever & its Directors

In 1998, the infamous late Harshad Mehta of the 1991/92 Scam, through his Damayanti Group, had played up shares of BPL, Videocon & Sterlite in alleged connivance with their managements. Top Brokers too were involved as was the Shriram Mutual Fund. SEBI Chairman DR Mehta at the time in April 2001 had passed an order barring  Videocon International for Three Years from raising Monies from the Public in the Capital Markets & to pursue prosecution of the Directors, Mr V N Dhoot, Mr S K Shelgikar & Mr S M Hegde. They had appealed to the Securities Appelate Tribunal (SAT) who set aside the order in 2002 

M K Sharma, the current Chairman on the Board of ICICI Bank also serves on the Board of United Spirits, Wipro & Asian Paints. He had retired as Vice Chairman of Hindustan Lever Ltd (HLL)in 2007 and was a defendant in an Insider Trading Case filed by SEBI on Hindustan Lever on a purchase of Brooke Bond Lipton India Ltd (BBLIL) Shares from UTI in 1996 just two weeks before announcing that BBLIL was merging with HLL. SAT had set aside this order. His response, on the current controversy, as the Bank’s Chairman to Indian Express is pretty aggressive, in my view, but is bereft of the real answers that need to be provided.

I glanced through the names of the Members on the Board of ICICI Bank  & it’s no real surprise that they have backed the CEO & MD, Chanda Kochhar.

In the past we’ve witnessed how an ’eminent’ Satyam  Board too has cleared Promoter Ramalingam Raju’s Maytas Proposal to hide the cash hole …. we’ve also seen Infosys Board stand behind Sikka who eventually resigned last year 

Until Indian Express featured the Kochhars-Videocon-ICICI Bank link ups as their Headline Story updated as of March 30, 2018 the detailed blogpost letter of October 22, 2016 by  Shareholder Arvind Gupta on this was not in mainstream media even though he had addressed the issue to the PM & FM &  the heads of a host of regulatory bodies

The above Press Story & Blog post are in great detail of what they claim has transpired as a premeditated conspiracy between the Kochhars & Videocon’s Dhoot to benefit both through ICICI Bank loans to Videocon

It Boils down to simply this => What started out as NuPower Renewables Pvt Ltd(NRPL) & a 50:50 Venture in December 2008 between the Kochhars & Dhoots, who owns it now ? & how has the Capital Structuring & Shareholding Pattern Moved & at what Pricing ? Herein lies the whole question as to why would Dhoot let go at par his 50% incorporation time direct holding of 24996 equity shares of FV Rs 10 in NRPL & also 9990 equity shares at par directly held in his privately owned Supreme Energy Pvt Ltd( SEPL) on January 15, 2009 ? On Paper the SEPL Shareholder now was Mahesh Chandra Pungalia, an associate or employee of Videocon. SEPL then extended a Rs 64 crs loan converted to FCD in March 2010 to NRPL. In April 2012 ICICI bank extends a consortium facility of Rs 3250 crs to the Videocon Group. After this On September 29, 2012 Pungalia sold these 9990 shares of SEPL  at par Rs 10 to Pinnacle Energy Trust (PET) which NRPL claims was above Fair Market Value of Rs 8.82.Then in April 2013 PET subscribed to another 80000 shares at par Rs 10 in SEPL. Now SEPL came fully under the control & ownership of PET of which Deepak Kochhar is the Managing Trustee. NRPL states this subscription too by PET was done at Fair Market Value.Then just a year later E & Y gives NRPL an Enterprise Value of Rs 1092 crs ! & remember that at that time too SEPL had a direct Investment of  47496 shares in NRPL ( 22500 came from Pacific Capital,owned by Chanda Kochhar’s sister-in-law & father-in-law in June 2009 at par & 24996 came from Dhoot in January 2009)  & an investment of  Rs 64 crs through FCDs in NRPL ! ~ Then if the EV as per E & Y was Rs 1092 crs how was the FMV of SEPL only Rs 10 or below ! even if a large part of the EV was Debt? PET bought SEPL at par investing Rs 9 lakhs to do so & that’s where the meat in this controversy & conspiracy is ! Videocon directly or indirectly facilitated  to give Rs 64 crs to SEPL to give to NRPL. It ceded full control of SEPL to PET at par. In short Videocon who gave Rs 64 crs to SEPL to give to NRPL will not be entitled to get it’s money back as it’s now in the form of shares of NRPL held by SEPL which is now fully held by PET controlled by the Kochhars unless it’s yet in the form of a loan given to SEPL to in turn give to NRPL . The benefit of the E & Y Valuation, if we accept it solely goes to the Kochhars…. this is the Crux

Reviewing the Annual Reports of NRPL & SEPL would reveal changing Shareholding & Capital Structures & Book Values

I have gone through the revelations & accusations & the counter responses too & here are a few questions that arise or yet remain unanswered by the very cleverly worded Clarifications of Nupower & Videocon’s Venugopal Dhoot & MK Sharma, Chairman of ICICI Bank

• NRPL states that Rs 64 Crs received from Supreme Energy Pvt Ltd (SEPL)were allotted as Fully Convertibles Debentures in March 2010. The accusation was that this was initially a Loan to NRPL from SEPL who in turn had got the monies to do so from another Videocon Company. So was this initially a Loan? & what were the FCD Conversion Terms? NRPL states the Conversion took place in March 2016. This is important as it establishes if there was any Premium on the Shares as Mr Dhoot had sold of his shares at Par itself (see below)  
• Mr V N Dhoot says he resigned as Director of NRPL on January 15, 2009, within 20 days of appointment and sold of his 24996 Equity Shares of NRPL at Rs 10 par itself. To who? am connecting from data that the purchaser was SEPL. He further states that on the same day he had sold of his 9990 shares of SEPL at par too & received the Monies immediately.What he has smartly avoided is to disclose when did he receive the Monies for the sale of his NRPL Shares. If it was much later then one can suspect ante dating the transaction. Also he has not disclosed who was the purchaser of SEPL shares when the accusation is that it was sold to his own Videocon Group Employee, Mahesh Chandra Pungalia
• Ernst & Young LLP’s Merchant Banking Subsidiary has valued NuPower Renewables Enterprise Value at Rs 1092 crs as on March 31, 2014. How have they arrived at this Valuation? In the six years from FY’12 to FY’17, the accumulated losses for NuPower amounted to Rs 78 crore. In FY’17 it posted a loss of Rs 14.3 crore. As on March 31, 2015 the Number of Shares was 20.47 lakhs. The E & Y Valuation translates into a phenomenal Rs 5333/share. Recollect it was E & Y who was pulled up by the Company Law Board for Valuing Maytas Properties at Rs 6523 crs in just one day ! in the Satyam Controversy of 2008/9 Perhaps the answer lies in the overseas funding NRPL received between 2010 & 2012 of Rs 325 crs from a Mauritius entity Firstland Holdings Ltd which was transferred to another Mauritius entity DH Renewables Holdings Ltd who then gave NRPL another Rs 66 crs in December 2014. DHL is a wholly owned subsidiary of a Cayman Entity with it’s head office in Singapore. It does need to be established who ultimately controls or is the final beneficiary of these overseas entities … daresay, this may really open up the Pandora’s Box !

Oh ! too many questions !…. let CBI & SEBI who have launched a Preliminary Enquiry figure it all out

For me, my only sense is that this blatant ‘in the face’ sense of entitlement’ mindset & culture that prevails & grows in powerful echelons of our society should be challenged & there has to be, & be seen too, high standards of Corporate Governance … ACT ~ Accountability, Conscience & Transparency 

I have no personal Axe to grind & no loan approval pending with the ICICI Bank ! 🙂

Update April 2,2018

Just read Venugopal Dhoot denying his Videocon Group or him ever investing Rs 64 crs in NuPower FCDs or ever routing Rs 325 crs to NuPower through Mauritius entities …Then who did? Who gave the Rs 64 crs to Supreme Energy in 2009/10 ( wholly owned by Dhoot till January 2009)to give in turn to NuPower? …& interestingly Rs 325 crs received later from overseas entities is exactly 10% of the Rs 3250 crs consortium facility share extended by ICICI Bank to the Videocon Group in April 2012 …just a coincidence perhaps…as I’ve said it has to be established whether these overseas entities had direct or indirect links with the Dhoots & their Private & public entities…Dhoot says Deepak Kochhar was an ‘old acquaintance’ & hence his investment in Deepak’s NuPower in December 2008…I would say having invested in Deepak’s listed Credential Finance way back in the 1990s & having his advisor Shelgikar on the Board too would merit concluding that Deepak was more than just an ‘old acquaintance’

In another parallel development the Economic Times has reported today that their sources say that the regulator RBI has directed the Axis Bank Board to reconsider the fourth three year term passed by it last year for it’s MD Shikha Sharma due to the deteriorating asset quality of the bank