Sucheta Dalal :Dalmia's creditors get jittery
Sucheta Dalal

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Dalmia's creditors get jittery  

Jan 21, 2002



With so many investigative agencies scrutinising his operations, Dinesh Dalmia of DSQ Software is finding it difficult to manoeuvre his way around tricky situations. Already his company has declared a surprising loss of Rs 17.93 crore in the December 2001 quarter. He is now planning to cut costs by reducing his staff strength by 150 or more. Meanwhile, his negotiation with the Singapore-based Ramesh Vangal to sell chunks of DSQ Software’s operation is also in limbo. The delay in signing off the Vangal deal has apparently been making all of Dalmia’s creditors very jittery; especially a powerful Kolkata-based broker to whom Dalmia owes a lot of money, and who he had promised to pay up after the deal was sealed. Dalmia had apparently promised the broker that some crucial decisions would be taken at DSQ’s mid-November board meeting, but nothing happened. This broker in turn is under tremendous pressure from another overseas creditor. Guess who this is? He is a key player of the 1992 securities scam, and former Citibank top honcho, who was asked to leave India by the Reserve Bank of India. Dalmia himself continues to push for major international contracts (such as HongKong & Shanghai Banking Corporation) through DSQ Software and what were formerly its European operations (now christened Total Systems). However, the curious absence of a clear demarcation between the Indian company and the foreign ones should worry investors in both entities.


Enron’s venture capitalism


This originates from a fund manager, who has reduced the Enron imbroglio to a simple, easy to comprehend snapshot. It is called an innovative venture financing structure...Enron style. Suppose you have two cows. You go ahead and sell three cows to your publicly listed company, using letters of credit opened by your brother-in-law at the bank. Then you execute a debt/equity swap with an associated general offer so that you get four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via an intermediary to a Cayman Island company secretly owned by the majority shareholder, who in turn sells the rights to all seven cows back to your listed company. The annual report says the company owns eight cows, with an option on one more. Did anyone say you have only two cows? Fix that by consulting Arthur Andersen and then asking it to certify your accounts — there will be no questions asked.


The DC connection


At a time when Information Technology was hot, Dilip Chhabria Design (DCD), an automotive design and prototype company was chased by investment bankers and brokers to go public. Leading the pack was First Global Finance, the aggressive brokerage firm, which claimed to have discovered DCD’s potential and managed to get a chunk of its shareholding. Of its current paid up share capital of Rs 25 crores, Chhabria owns 75 per cent, another 10 is held by Jardine Matheson and the remaining 15 per cent by the Himachal Futuristic Communications Ltd group. HFCL’s accounts were qualified by its auditors for failing to make provisions of Rs 632 crore of which it had transferred Rs 482.6 crore to a wholly-owned subsidiary called HFCL Trade Invest for ‘strategic investments’. Is this one of those strategic investments or did HFCL strategically buy out First Global’s stake in DCD? DCD says that the shares were directly allotted to HFCL and merely placed by Shankar Sharma. Incidentally, he was also lead arranger for HFCL’s controversial four-digit private placement.




Old problems they say never go away. Indian Hotel Company is discovered this a couple of months ago when it was slapped with eight show cause notices from the Enforcement Directorate (ED), in connection with the Ajit Kerkar imbroglio. A few weeks later, another eight show cause notices landed up and a third installment of eight is on the way. Two of them are issued against the managing director R.K. Krishnakumar, apparently because some of Kerkar’ convoluted remittances, which were declared a violation under FERA (Foreign Exchange Regulation Act). These have continued even after his exit and the Taj had learnt no lessons. The notices have been served under FERA, with the ED working overtime to get them registered before the two-year sunset clause ends on May 31, 2002. All companies served notices under FERA, had believed that the courts would probably adopt a far more sympathetic approach to them once FERA was replaced by a more lenient FEMA. The government is reportedly working at bringing back some of FERA’s more stringent legal provisions making illegal remittances a crime in the aftermath of September 11, and the attack on India’s Parliament. Although aimed at terrorists, this is bad news for the corporate sector.



-- Sucheta Dalal