The company and its Directors name was involved in Syndicate Bank Bribery Case in August 2014. The company in its statement had denied its involvement in the bribery case. It was alleged that the company had paid bribe for around Rs 3.5 Cr for sanctioning of ECB loan for USD 20 Million.
I have tried to analyse above issue and have following observation :
As per Annual report dated 31/03/2014 :
“The Company had issued FCCB of USD 110 Million in earlier years, out of which FCCB of USD 32.9 Million got converted into Equity Shares of the Company. Out of Balance USD 77.1 Million, FCCB of ‘ 10,277 lacs (USD 17.1 Million) are due for redemption on 13th October, 2014 and carry interest @5.625% and FCCB of ‘ 36,060 lacs (USD 60 Million) are due for redemption on 30th April, 2015 and carry interest @5.25%.However, the respective bond holders have an option to get their bonds converted into equity shares of the Company on or before the maturity date.Outstanding FCCB are repayable in Foreign Currency and their repayments have not been hedged by any derivative instrument or otherwise by the Company.
FCCB for USD 17.1 million (plus interest) were due for conversion on 13/10/2014 , the conversion price was Rs 170 per share, however the market price was around Rs 50 in March 2014, as the market price of stock was less than Rs 170, it was certain that the FCCB would not be converted into Equity shares and hence the company would be required to pay around USD 20 Million to FCCB holders. The company had told that it had been sanctioned ECB of USD 20 million from Syndicate Bank.
I think the ECB of USD 20 Million was probably for repayment of FCCB which was due for payment in 13/10/2014. Now the allegation was that the company has paid bribe of Rs 3.5 Cr for sanctioning of loan of USD 20 Million approx Rs 120 Cr. Let us analyse ……
On 31/03/2014 , the total debt (Including all FCCB) of company was Rs 725 Cr (Short Term 23Cr + Long term 702Cr) and the Equity was Rs 2232 Cr
Debt to Equity =0.32
Interest coverage ratio = 4.52
Cash Flow from Operation Rs 313 Cr
Net Profit = Rs 173.16 Cr
ECB for USD 20 Million was not an additional debt but simply conversion of FCCB to ECB i.e effectively it was not additional debt but mere conversion. My assumption is that any company (particularly in Steel Industry) that would had approached any Bank for ECB of USD 20 Million with Debt/Equity of 0.32 ,ICR of 4.52, and CFO of Rs 313 Cr, would not be required to pay any bribe. Any Bank would had been more than happy to lend the company with such strong financials.
In the Syndicate Bank bribery case two names were involved one was Bhushan Steel and the other one was Prakash Industries. Bhushan steel was in real stress and it was true that it was getting hard for them to keep their loan accounts standard and raise additional loans from Banks. However as explained above the same was not the case for PRakash Industries as it had very much strong financial position. However, whatever the truth may be, the charges of Syndicate Bribery case on Prakash Industries have not yet been prooved till date and I am also not aware of the present status of the case but this incident has put a permanent blot on management’s integrity and Corporate Governance of the company. People think twice before investing in this company due to above issues, however my perceptions are changing for the company.
(My views may be biased as I am already invested in this company)
I think after this Bribery incident the ECB was not disbursed and within next 2 to 3 months the coal block allotted to the company was also cancelled by Honble Supreme Court and the company had to pay Rs 250 Cr. The company then defaulted in its ECB repayment and after default the management had to pledge all its shares. Subsequently the External rating of the company was also categorized as default and its loans were also restructured.