Forensics and the art of triangulation

(Krishnaraj) #264

To add, I think we will do well to separate the people raising the issue from the issue itself as @BreakingBad01 put it brilliantly.

The generally accepted wisdom in very intelligent communities like researchers, scientists, philosophers, academia etc that I find quite useful, is to avoid ad hominem ways of thinking. I think just doing that raises the quality of analysis manifold.

Questioning the credibility of the person raising the issue is usually a trap laid by those involved to muddy and defuse the real issue. And it’s a trap that we subconsciously fall into and spread around. It takes Kahneman’s System 2 thinking to overcome this tendency - difficult but necessary to overcome this tendency and get to the truth.

I mean if there is a known thief who presents a very compelling evidence that a well regarded person is actually wrong, it is natural for us to say that ‘you are a thief yourself, why should we listen to you’, but really speaking we should evaluate the evidence on its own merits to conclude. It doesn’t matter who is giving you the evidence, if it is the truth you are after.

(Bhaskar Jain) #265

Agreed with your point of separating the issue of purported corporate governance within Sun Pharma and intentions of MoneyLife.

Issue is some people ( almost all those who are “victims” of NSEL) feel, MoneyLife did not pursue the case even though they knew something was not right much earlier. Mail screenshot is from May 2012 and balance sheet is 2013 balance. Should they have accepted/kept the advance while knowing the group was indulging in such things, maybe legally its was all fine. The response given by MoneyLife is that they are a small organization and did not have the means & resources to pursue this case.

Same thing can be said of Sun Pharma that they did all things legally. Just because you are a publicly listed company, you should follow some high standards… whereas the media company which published the purported whistleblower letters themselves don’t follow the high standards demanded by themselves of others.

I also read MoneyLife magazine on and off. Have read the book ‘The Scam’ written by them. But sometimes too much power in your pen, whereby you can move markets just by publishing article and giving preferential access to institutional investors …makes you like Harvey Dent from the movie Batman.

“You either die a hero, or you live long enough to see yourself become the villain”

disc - invested in Sun

(Gaurav Agarwal) #266

(Krishnaraj) #267 is an independent research house based out of Singapore, which also covers Indian stocks. It independence often means that views are indeed very different from the reports coming from India brokerages.

It’s a paid service, however yesterday they publicly released an Editors Pick 2018 edition . It carries a very incisive analysis of Yes Bank by Mr Hemindra Hazari (pages 27 - 29). Thought the analysis is dated May 2018, the quality is superb and useful for analysts. The issue was around treating a Rs 485 crore debt to Reliance Naval Engg as standard, which other banks were classifying as NPA!


Further, very suspiciously and surprisingly, Yes Bank had no lien on its exposure and the suddenly a lien shows up against this exposure (and showing the loan is serviced, when the bankers the analyst spoke to say that even normal banking fees were not paid up!!)

Here’s what Hemindra had to say:

All in all, I think this is amazing analysis on a banking stock, and shows the games that bankers play that can remain hidden for a long time.

Yes bank

Thank you for this. Please post this in Yes Bank’s thread for the benefit of all its investors.

(Krishnaraj) #269

Prof Sanjay Bakshi shared a beautifully brilliant analysis that in my view concludes that NHAI is on a death spiral. He is mild when he says it is chilling. 24012019 A Highway to Debt.pdf (1009.1 KB)

NHAI’s debt has spiralled to more than 6 times between March 2014 and Sept 2018, from around ₹ 24,000 cr to around ₹ 148,000 crores. Its FY 18 Annual Report is yet not available!! Its FY 17 accounts indicate its income is far far short of even the interest payments it needs to make, leave alone principal. And as debt has ballooned, so will the future redemption and interest payments. But NHAI is meeting these by simply raising more debt, which is a classic death spiral.

So why CRISIL gives it AAA? Prof Bakshi explains it brilliantly. CRISIL gives AAA only and only on the basis of Govt Support and the privilege to issue tax free bonds, not on the basis of its operating cash flows. So will the Govt pull out support? Yes, it is already doing that by reduced budgetary support which is why NHAI is now approaching the bond market.

It has no auditor, accounts are in a mess, and is left to CAG to audit its account, and it has been scathing as pointed by Prof Bakshi.

Its audit report says this in AR 17:

Mathematically speaking, if your only option to meeting your debt obligations is to take more debt… then debt compounding will just choke you to death, and the noose will tighten at a faster rate than before.

@ChaitanyaC my intent was to uncover and share incisive analysis than to point out issues at Yes Bank.

(Gaurav Agarwal) #270

Recently I went on road trip (around 1000km) and paid toll of Rs. 1000/-.

According to the profit and loss account for March-2017 shown in the article of Prof. Bakshi, NHAI had total income of Rs.13 crore only. This amount (13 crore total annual income) looks quite less to me given the amount of toll NHAI is collecting.

Something is amiss here. This total income should be quite high at least few thousand crore of rupees. Even, MEP infra had a topline of Rs. 1700 crore in 2017.

(Krishnaraj) #271

No, nothing is amiss, please check the annual report (have shared the link) and how they account for it (check for Plough Back of Toll Remittance).

Prof Bakshi has picked it straight from the AR.

(grohal) #272

Most public infra is not built for profits. NHAI has successfully built good road infra around the country in last few years. It is definitely not profitable and will never be. But still country definitely needed those roads, no matter if NHAI goes bankrupt building them.
That said govt should try to live with in it means, otherwise inefficient govt borrowings will crowd out the corporate borrowers from market and eventually economy will start suffering. For now corporate are anyway not borrowing much so govt have enough leeway.

(manivannan.g) #273

(saumya) #274

Here was Deepak Shenoy excellent counter arguments to Professor Bakshi above article.
Key thing to learn from both these article:
1.There are always 2 side to any story good or bad
2.The way these two gentleman respected each other counter views and healthy discussion followed very important for all VP member to learn from them.

(Gaurav Agarwal) #275

Yes, Deepak’s article makes lots of sense. Important points

  1. NHAI is a special company. It does not have shares.
  2. Toll revenue goes straight to “Consolidated Fund of India”.
  3. Debt of NHAI should be on the books of GoI.

In my limited understanding and knowledge the debt is guaranteed by GoI. The problem may in the way NHAI has been formed.


I am sure this will help the concerned investors of Yes Bank who are active in the thread. This is new and even shows a picture which may turn out to be another blow.

(Krishnaraj) #277

Thanks a ton for sharing this view.

The key issue is whether NHAI is good debtor. Prof Bakshi says that it has to borrow to pay its interest and principal, and this will worsen with reduced Govt support. A death spiral, in my view.

I think the essence of what Deepak is saying is that NHAI collects about Rs 7,000 crores from operations as tolls and this is more than the interest due in FY 17. Principal can always be always be rolled over (aka Govt) and the debt is quasi guaranteed.

In my view these are very tenuous. Take the first, Rs 7,000 crores toll is the gross amount. Cash flow from financing shows the net amount to be Rs 6506 cr. But not all of this is available for interest payments. Operational cash flow sucked about Rs 1932 cr, leaving Rs 3576 cr to deal with interest. Interest paid however was Rs 4068 crores, higher than what it got via tolls net of operational cash outflow. Thus toll collections are not covering interest. Additional funds are needed and provided by the Govt / market to clear interest.

Now this was with an average debt of Rs 50,000 crores. The debt now is about Rs 150,000 cr, which means an interest of Rs 12,000 cr at the same rates. Now we don’t know what the net toll collections are, but it is unlikely it would have gone up in the same proportion because toll takes a longer time to ramp up than debt ramp up. Thus it is likely that toll collections are yet not enough to cover interest payments after operating cash outflow.

On the assumption that principal can be continuously rolled over, I think Herb Stein’s quote Prof Bakshi put out says it best - “If something cannot go on forever it will end”. I am tempted to think rhyming histories like discom restructuring, where the music does change if not stop.

On the last assumption that the debt is quasi guaranteed, the answer is no. There is no guarantee of the Govt in NHAI’s borrowings including the famed 54EC bonds. We are conditioned to think that way because of Govt association with NHAI and it obviously suits the Govt and NHAI to encourage it.

There is also an inadvertent error in the piece - it says Govt borrowings in FY 17 was 61 lakh crores. That is incorrect, the net borrowings in FY 17 were about 4.268 lakh crores (Source: RBI). So if the Govt were to assume this debt it would add to more than 35% of its borrowing - can’t even think of it!.

(Dinesh Sairam) #278

I found this very interesting too as soon as I read the Professor’s note. The government’s investment in NHAI is very much like investing in a Zero Coupon Bond. There are no intermittent payments, but there’s a huge Capital paid out at maturity.

I think there are too many parts, but it’ll be interesting if I value the government’s investment in NHAI. I’m going to try just that one of these days.

(Gaurav Agarwal) #279

NHAI is not a company. It is an authority created by an act of Parliament. Read Act of Parliament here.

Chapter IV of the act mentions - Finance, Accounts & Audit of Authority.

According to section 23 accounts and audit of authority shall be maintained in consultation with CAG.

Section 21(3) - Central government may guarantee payment of principal and interest borrowed by authority.

I could not find any mention of toll but section 16(2)(k) mentions that authority can collect fees on behalf of Central Government and/or State Governments.

In my opinion

  1. NHAI cannot looked as company. Companies are created/governed according to Companies Act.

  2. Money given to NHAI by central government is not investment. They are grants and loans which can be only given by due appropriation made by Parliament by law.

  3. I tried to find if central government have in-fact guaranteed any NHAI bonds but I could find any mention of it.

(rkatikam) #280

I was going through the Annual report of Sundaram clayton. In the consolidated financials section, there is a huge jump in total borrowings from ~1660 Cr to 7600Cr between FY17 and FY18. But what I am not able to understand is that there is no entry in the Cash flow statement’s financing activities. How can a company raise debt without accounting it in CFF?
Even Screener shows the same

(Krishnaraj) #281

The difference is due to accounting rules on business combination of companies which were acquired during the year that were already carrying debt.

Do refer page 124 and 171 of the AR 2018, and let’s take it offline please.

(Ajay) #282

Cobrapost allegations on DHFL. Dont know how true this is though

Disclaimer: I am a DHFL shareholder for the past many years

(Krishnaraj) #283

Cobrapost seems to have done a lot of work, to say the least. Their detailed note with many supporting documents may be seen here.

This graphic is the summary of it all.