Deccan Group Falls Down
The collapse of the Deccan Group which is the owner of one of the largest media groups in the country and the Indian cricket franchise Deccan Chargers has rocked the corporate world. The Group which has dramatically increased its debt in the last 2-3 years, now has almost $1 billion in net debt which is at the risk of going bad. The Deccan Chronicle group has debt from the who’s who of the top Indian banks, who have now woken up to the problem. Due to the massive debt, the Indian Government and its agencies have gotten into the act with one of the banks performing a forensic audit and Registrar of companies starting an investigation. The creditors have also asked BCCI to auction the Deccan Chargers in order to pay the creditor group. The banks are to blame for not doing due diligence at the time of giving the loans and doing their credit risk assessment based on a rating given by CARE. Note these ratings have little credibility, as was brutally proved during the US housing bust.
The banks are crying to the Government about the dishonorable intentions of the promoters the Reddy group in squandering away almost a billion dollars. Note the promoters were close to the erstwhile Congress chief minister YSR who went on a spending binge buying racehourses, expensive cars and diversifying into book stores etc. With YSR’s son Jagan Mohan on a revolt against the “Congress high command” , many of his father’s business friends are in the firing line. The Deccan group is a story of India’s crony capitalism gone bad.
The government on Tuesday said Canara Bank is conducting forensic audit of the accounts of troubled Deccan Chronicle Holdings Ltd (DCH), which runs a media group and owns an IPL cricket team.
“Canara Bank is the lead banker of lenders’ consortium to DCH and the bank is conducting forensic audit of DCH,” Financial Services Secretary D K Mittal told reporters here.
He said the bank will “see if there are any faults and discrepancies” in DCH.
Google+Worried over its exposure to T Venkattram Reddy’s Deccan Chronicle Holdings Limited (DCHL), a group of lenders has written to the Corporate Affairs Ministry that the Hyderabad-based listed media company, now on the verge of losing its control over IPL team Deccan Chargers, has allegedly squandered away about Rs 5,000 crore in just 15 months. This, according to the lenders, reflects not just alleged “gross mismanagement” but also “wrong and dishonourable intentions” of its promoters. Over a dozen-and-a-half banks have lent amounts ranging from Rs 50 crore to Rs 500 crore to the Deccan Chronicle group, said a banker. Much of this has been working capital loan, and bankers had little clue since DCHL enjoyed the highest short-term credit rating of A1+ till July 2, 2012, by rating agency CARE.
What has puzzled lenders is how the company with a turnover of less than Rs 1,000 crore (Rs 976 crore in 2010-11 to be precise) can allegedly utilize as much as Rs 5,000 crore between March 31, 2011 and June 30, 2012, without any significant addition to assets. During this period, Deccan promoters — Venkattram Reddy, Vinayak Ravi Reddy and P K Iyer — have reduced the company from a net cash position of Rs 390 crore (cash plus fixed deposits less debt, as on March 31, 2011) to a net debt position of Rs 4,300 crore (as on June 30, 2012).
The Reddys claimed spectacular growth when they concentrated only on newspapers but once they started diversifying and borrowing heavily, the business started crumbling. “The revenues from the newspaper were diverted, huge loans taken and no one strategized well to run the new businesses,’’ said a politician friend of the Reddys.
The family acquired the Odyssey chain of bookstores and lifestyle products in 2003 which immediately ran into losses and they had to shut down many outlets. In 2006, DCHL launched Seiger Solutions and Papyrus Clubs, an online portal to enable students to publish their own newspapers and books.
“The promoters have been deliberately concealing the actual indebtedness of the company by grossly understating the factual debt level of the company,” the group alleged in its letter to the Ministry of Corporate Affairs. By borrowing much more than the Rs 1,000 crore authorized by the shareholders, the company has also violated Section 293 (1)(d) of the Companies Act.
