Post-scam investigation reports compiled in a hurry and released under pressure inevitably have mistakes. The Janakiraman Committee on the Harshad Mehta scam had them and Sebi’s preliminary inspection report was savaged for its inaccuracies by some eminent columnists on the basis of First Global Finance’s criticism. The Tarapore Committee on UTI has its share of slip-ups too. To its credit, the committee had anticipated such gaffes and its report says that the ‘mass of data’ being processed by it could lead to ‘errors in data use and data interpretation’. One of these was the incorrect linking of Deewan Housing Finance to another Deewan group of companies. A more amusing mistake showed UTI’s investment in the profitable NSE as having suffered a 55 per cent depreciation. NSE in fact is a profit making company, which provides decent returns to its investors. Interestingly, the loss-making OTCEI, in which UTI has a fairly substantial investment, does not figure in the list.
Essar woes unwind
The Tarapore report has detailed how former UTI chairman P.S. Subramanyam twisted investment norms to give fresh funds to Essar Steel and continued to lend more money to Essar Oil, by subscribing to its debentures, even when it was already a defaulter. Since then its financial problems have only escalated. The Union Bank of Switzerland has invoked a $ 24 million guarantee issued by ICICI, which has turned up the heat from other lenders. On the other hand, the old Floating Rate Note (FRN) problem has reared its head again. Two international consortia of investors have filed winding up petitions against Essar Steel in the Gujarat High Court. One consortia is led by Spinnaker Global Emerging Markets Fund and another by the Gramercy Emerging Marketing Fund. Corporate sector sources believe that these petitions may trigger off further action from other FRN investors and cause panic among Indian financial institutions who are the biggest lenders to the company.
Buying GTB and helping Parekh
Among the many significant revelations lumped under various tables in the Tarapore Committee report is an investment of Rs 35 crore made in March 2000 in Global Trust Bank (GTB). The report says that the investment was sanctioned by UTI chairman P.S. Subramanyam in March but ratified by the executive committee only in July 2000. Was UTI providing Ketan Parekh with an exit route? A look at Sebi’s preliminary inspection report indicates that it was during this time that Ketan Parekh was ramping up the price of GTB. The close nexus between GTB and Parekh has already been established—all his firms and his favourite companies as well as their subsidiaries had accounts in GTB and benefited from generous financing arrangements. Also, P.S. Subramanyam had been pushing the UTI Bank into an extremely hasty merger with GTB (which has since fallen through). Market sources see a need for closer examination.
GTB & First Global
The Enforcement Directorate has already unearthed some strange deals between First Global Finance and GTB. Here are additional details. First Global apparently enjoyed special facilities at GTB when it came to acquiring HFCL shares. GTB subscribed to non-convertible debentures of Rs 15 crore each in eight companies most of which belong to the First Global Finance Group. These include private limited companies such as Panchal Components and Appliances, First Global Stock Broking, Vitra Trade & Agencies, Top Gear Leasing & Finance, Vruddhi Confinvest India, UD&MD Agencies, Naulakha Financial Services and Mohan Fiscal Services. In as many as 46 instances advances were released to these companies on the basis of oral sanctions and between September 1999 to April 2000, which aggregated to Rs 354 crore. Also a special overdraft facility of Rs 44.50 crore was sanctioned against the pledge of 3.55 lakh shares of Himachal Futuristic then valued at Rs 63.90 crore. All this was for the sole purpose of buying shares in HFCL — no questions were asked about end-use of funds.
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Correction: J.P. Gandhi, a close lieutenant of Bhupen Dalal, one of the scam accused in 1992, had suffered serious illness but has not passed away as reported by this writer. The error is deeply regretted.