Sahara-BCCI tiff: Was money pressure the tipping point?

Is the Sahara threat to pull out of its sponsorship of the Indian cricket team for real? Or is it merely a pressure tactic to get the Board of Control for Cricket in India (BCCI) to cut it some slack on issues that it considers vital?

There is also the possibility that the group wants to conserve its resources at a time when the Supreme Court is about to pronounce its verdict in a case where Sahara companies may have to refund over Rs 17,000 crore to investors in its Optionally Fully Convertible Debentures (OFCDs), as ordered by Sebi last June.

[caption id=“attachment_203378” align=“alignleft” width=“380” caption=“There is a strong possibility that the Sahara-BCCI faceoff may have other dimensions than merely the reported “emotional” tiff between the two. Reuters”]  [/caption]

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The press release put out by the group (read here) says since the 11-year relationship between BCCI and Sahara was “one-sided”, with Sahara doing all the giving and BCCI the taking, the group was calling it quits. The statement said: “We really feel such one-sided emotional relationship cannot be dragged any further. We are withdrawing from all cricket under BCCI.”

In other words, it’s more or less over.

Sahara has, of course, left open a small window by saying it is giving BCCI two to four months to find an alternate sponsor. If the BCCI wants to heal its relationship, it can do so in the interim.

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However, if Sahara carries out its threat, the BCCI will lose over Rs 2,000 crore of revenues - on sponsorship of the Indian cricket team and some more on the withdrawal of Sahara’s Indian Premier League (IPL) Pune franchise.

The press release put out by the group makes the final break seem inevitable, since it cites an entire laundry list of reasons for why it has decided on this break?

Among them: the BCCI’s refusal to allow a replacement for Yuvraj, now undergoing treatment for a tumour, in the Pune IPL team. Sahara wanted the right to bid for more players at the IPL auction using the amount currently allocated to Yuvraj. The auction is underway right now. (Under IPL auction rules, each team has only a fixed purse to make bids for players, so money can be used to bid for more players only if someone else is out of the team).

However, there could be another reason for Sahara’s willingness to push its grievances to breakpoint: the various court cases it has been running into over its investment schemes.

In the last few years, both the banking regulator and the market regulator - the Reserve Bank of India and Sebi - have been very critical of Sahara’s money gathering schemes. While the RBI asked the group to wind up Sahara Industrial Financial Corporation - which it says it has done - Sebi has asked two Sahara group companies to return over Rs 17,000 crore of money (the exact amount is in doubt) under false pretences and by avoiding regulatory scrutiny.

In an order dated 23 June 2011, Sahara Commodity Services Corporation and Sahara Housing Investment Corporation (SHIC) were asked by Sebi to return money raised by them through optionally fully convertible debentures (OFCDs) in the form of private placement when the money was really being solicited publicly.

The case is now in the Supreme Court for a final decision, but the court has asked Sahara to show that it has the money in its pocket to repay. It wants to see “unencumbered assets” or bank guarantees before its pronounces a verdict.

So far, what Sahara has revealed in its affidavit is that the money has gone into several real estate companies (Read this and this to find out where the money is).

If Sahara is finally asked by the Supreme Court to pay, it may be either forced to liquidate its assets or find money from other sources. It could find itself in a funds crunch since realty assets cannot be sold easily in the current market.

If one assumes that the group needs to show liquid resources, opting out of its money commitments in other areas - like the sponsorship of the Indian cricket team - is one way of staying liquid in the next few months.

There is, therefore, a strong possibility that the Sahara-BCCI faceoff may have other dimensions than merely the reported “emotional” tiff between the two.