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Barking Up The Wrong Tree?

ICICI Bank’s credit committee can only consider proposals from companies considered creditworthy by its credit risk evaluation teams

Photo Credit : Bloomberg


In the current state of frenzy around the state of  India’s banking industry, any whiff of wrongdoing is bound to be magnified dramatically. And with this magnification comes frantic scrutiny and the frenetic race to be the first to judge or report a scoop. Nothing at all wrong with that. On the contrary, it only goes to demonstrate the system of checks and balances our democracy offers us in such scenarios. However, even the staunchest of  believers will agree that we do tend on occasion to present the part of the picture that suits the most newsworthy outcome, resulting in a one-sided discussion. That is not to say that the outcome may not be the one we are pitching for, but as history — and jurisprudence — would demonstrate, we must not pronounce judgement without balancing both sides of  the story.

In l’affaire Chanda Kochhar, the general sense emanating from a prima facie look at the material in the news is that there could very well be quid pro quo involved. It seems that within short periods of loans being sanctioned to Videocon Industries and its associates, about ten per cent was lent by the promoter and his associates to NuPower, now controlled by Deepak Kocchar, who, as we are now well  aware  is Ms Kochhar’s husband. The endeavour in this article is to work out a timeline based on public information and response from the parties involved, to glean an understanding of  how all of  this played out. The idea is to clearly discern from the available material, the ‘quid’ and the ‘quo’ of the matter.

NuPower Renewables was setup by Deepak Kochhar and Venugopal Dhoot, promoter of Videocon in December 2008. Dhoot resigned from his position within 20 days and transferred all his shares at par which would be the price to be expected three weeks from the formation of a company. He also transferred his share in Supreme Energy to another associate — Mahesh Kumar Punglia — at par, again the expected fair market value at that time. So while we shall examine Supreme Energy and its transactions subsequently, it would be fair to say that from  this  time onwards, Dhoot, his family and companies had no further business relationship with NuPower directly.

The questions that remain from this period are two. First, is there any relation here to the timing of Chanda Kochhar’s appointment as CEO of  ICICI Bank (that she would take charge in May 2009 was announced in December 2008) and Dhoot’s decision to exit NuPower. Second, while Dhoot has stated that he had exited Supreme Energy  in January 2009, the filings with the Registrar of Companies show him to own the shares (99.9 per cent) till October 2010. The second question is vitally important, because it would mean that a loan of  Rs 64 crore came to NuPower from a company essentially fully owned by Venugopal Dhoot.

Subsequent to this in June 2009, Pacific Capital controlled by Deepak Kochhar, sold 22,500 shares in NuPower to Supreme Energy at par, which one presumes would be fair value as this was within about six months of  incorporation. This would make Supreme Energy owner of 94.99 per cent of  NuPower.

NuPower makes a claim that Supreme Energy never owned 95 per cent of NuPower on a “fully convertible basis”. This claim is fairly untenable uptill March 2010, unless the technicality being slipped in is that the ownership was 94.99 per cent and not 95 per cent. It is also a roundabout and duplicitous statement that in the light of events yet to have occurred at that time, the holding would reduce.

In March 2010 (or about two years before the loan was granted to Videocon Industries) Supreme Energy, which was already a shareholder in NuPower, invested Rs 64 crore in fully convertible debentures (FCDs)  in the company. Since Supreme Energy already held 94.99 per cent stake in the company, one assumes that the intent of the debentures (whose terms are not public yet) was to issue fresh equity on a post-diluted basis. Even so, upon conversion of these debentures, Supreme Energy would end up holding  even more than the 94.99 per cent stake it already had.
This transaction raises further questions about the shareholding and dilution of stake in Supreme Energy. Subsequent transactions in September 2010 valued Supreme Energy below par, presumably because it was loss-making. Also, as mentioned earlier, if  Venugopal Dhoot did indeed own this company till October 2010 as the registry indicates, then this money essentially came directly from him.

In April 2012 ICICI Bank as a part of a consortium of  banks, issued a loan of  Rs 3,250 crore to Videocon Industries Limited with a short-term loan as a sub-limit of  Rs 650 crore to an associated company, Tuskar Overseas (which has been erroneously presented in various reports as being Rs 3,900 crores, i.e. a total of the two amounts). The loan being mentioned in this context was actually disbursed in 2006 and fully paid back by 2010. The ICICI Bank also did not disburse any loans to five other companies being mentioned (Trend Electronics Limited, Century Appliances, Kail Limited, Value Industries Limited and Evans Fraser & Company) at this time.

It  is  important  to understand here that as with any other bank, ICICI Bank’s Credit Committee can only consider proposals from companies considered creditworthy by its credit risk evaluation teams. As ICICI Bank lent as a consortium member, accounting for only eight per cent of  the total funds disbursed, the question of propriety of the transaction should either be extended to all lenders or be consigned to ashes at this point. The ‘quid’ of the transaction lies in this transaction, and therefore, begs for a larger investigation into the entire consortium and the advisors (SBI Caps and IDBI Bank) and cannot be focused solely on ICICI Bank and Chanda Kochhar.

Therefore, subject to the ‘quid’ being investigated and proven, it is in September 2012 that we find the potential ‘quo’. In a transaction two-and-a-half years after  the issuance of  FCDs for Rs 64 crore to Supreme Energy, along with their 94.99 per cent holding, a trust called Pinnacle Energy whose Managing Trustee was Deepak Kochhar, purchased 9,990 shares (or 99 per cent) of  Supreme Energy at par – which was above the fair market  value of  Rs 8.82, as stated by NuPower – and then subsequently, in April 2013, most likely got Supreme Energy to issue 80,000 fresh shares at par to Pinnacle Energy increasing its equity base to Rs 9 lakhs – the supposed amount invested in NuPower by Deepak Kochhar and his associates.

The outcome of this transaction was that Deepak Kochhar, through Pinnacle Energy now owned 99.99 per cent of Supreme Energy, which in turn owned 94.99 per cent of NuPower and the remainder of NuPower was of course, directly owned by him and his family. And that is what brings us to the quo: It is stated that in March 2016, the FCDs issued by NuPower to Supreme Energy were converted to equity resulting in a 10.1 per cent holding for Supreme Energy, down from 94.99 per cent, plus the potential converted value of  the FCDs.

In summary therefore, it appears:
* Venugopal Dhoot personally exited the venture(s) on 15 January 2009. The question that remains is whether the person taking over Supreme Energy – Mahesh Chandra Punglia – acted as his proxy.

* Supreme Energy invested Rs 64 crore in NuPower, but was sold for Rs 9 lakh to the Deepak Kochhar led Pinnacle Energy. Pinnacle Energy’s books need either show repayment or current outstanding against this amount, and accrued interest if any. If not, then it raises a serious question about the intent and purpose of  this transaction. This is the quo.

* The extension of credit to Videocon Industries, as explained earlier, cannot be linked to this amount of Rs 64 crore for two simple reasons. One, the amount came into NuPower two years before the loan was sanctioned. And two, the credit was extended as a part of a consortium, of  which ICICI Bank was merely an eight per cent contributor. If questioned and established as the ‘quid’, it directly follows that the entire Rs 40,000 crore consortium loan must have subsequent ‘quos’ and then, it’s not just Chanda Kochhar whose conduct and role needs to be examined, but that of officials across banks that participated in the consortium.

* It is also important to note that Chanda Kochhar was just one member of the Credit Committee which was led by K. V. Kamath and consisted of other independent directors. Therefore, a link between an inflow two years ahead, being a result of a transaction in which ICICI Bank was to be a minor participant,  being influenced by Chanda Kochhar solely, can at best, be tenuous.

The ICICI Bank deals with most corporates in this country and so, just by that association, relatives of senior officials — many of  them well established and reputed in their own rights — cannot be prevented from associating with them. It is almost certain that these business dealings would have been declared by Chanda Kochhar to ICICI Bank as part of governance mechanisms. It would, therefore, be difficult to pin blame retrospectively. Most importantly, it would appear from the timeline that the quid pro quo seems to be inverted and therefore, not logically valid.

The real mystery actually revolves around two points:
* One: the source of the Rs 64 crore that was invested by Supreme Energy in NuPower, and its current position, in the light of  the fact that a company holding Rs 64 crore worth of FCDs (at cost) was sold for Rs 99,990.

* Two: Is there a pecuniary relationship between Venugopal Dhoot and Mahesh Kumar Punglia, which could point to the latter acting as a proxy of the former in order to create an impression of an arm’s length dealing.

The source of the Rs 64 crore is not a loan given by ICICI Bank as the timeline shows, but these two points are the crux of the ‘quo’. There may well be a Chanda Kochhar angle to the ‘quid’ yet, once  these two points are resolved. However, until then, in my opinion, we are collectively barking up the wrong tree.

This column has relied on published articles as a reference for facts mentioned

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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icici bank chanda kochhar Magazine 14 April 2018

Prasar Sharma

The author is an ex-banker who analyses business issues & their impact on the overall business environment

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