Sahara will have to sell realty assets to pay off investors

Three days of the 90-day deadline given by the Supreme Court to the Sahara Group to repay over 22 million investors in its bonds have passed.

In a verdict dated 31 August, the court confirmed Sebi’s order to Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC) to refund Rs 24,000-and-odd crore collected from investors without Sebi’s permission along with 15 percent annum interest. The total repayment could exceed Rs 27,000 crore, if all the alleged investors are for real.

Will Sahara be able to pull it off? Will it be able to present Sebi with a cheque for Rs 27,000 crore in 87 days flat?

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The answer is it can, provided it liquidates its real estate assets quickly.

[caption id=“attachment_442792” align=“alignleft” width=“380”]  There is just no end to the Sahara family’s real estate assets spread all over the country. AFP[/caption]

Looking at a Sahara Group affidavit submitted to the Supreme Court on 4 January 2012, the group’s property assets seem to be on a par with DLF’s. It is one of the top real estate owners in the country.

It seems that bond holders of SIREC and SHIC will be paid off by liquidating a lot of the real estate assets of these two companies - and this will have to be done within less than three months.

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The market value of Aamby Valley city, a private hill station near Mumbai in Pune, is said to be valued at Rs 40,461 crore. The city is owned by a Sahara Group company Aamby Valley Ltd and its 100 percent subsidiary companies.

The question: How did a real estate project bought by the Sahara Group before SIREC and SHIC started selling their bonds in 2008-09 become part of these two companies? According to a Business Standard report in January this year, SIREC and SHIC showed a book value of Rs 6,687 crore in terms of shares of Aamby Valley owned by them as at the end of June 2010 (also read here ).

However, the Sahara family may not sell this project fully, because it has filed a demerger petition under Section 391/394 of the Companies Act, 1956, with the Bombay High Court on 10 June 2011. The petition is still pending.

But that’s not the end of it all. The Sahara family owns 90-95 percent stake in special purpose vehicles (partnership firms) having 64 projects in 64 cities/towns throughout India on land admeasuring 4,378 acres. The valuation of the Sahara stake in these companies is pegged at Rs 21,631 crore (before tax), the affidavit, signed by five Sahara members, including the head of the Sahara “family” Subrata Roy Sahara, says.

The Saharas have even reached the doorstep of DLF Gurgaon, where DLF has constructed a huge city over 3,000 acres of land. Flexing their real estate muscle, the “Saharas” (as the Supreme Court verdict characterises the group) list a project spread over 186 acres of prime land in Delhi and Haryana bordering Gurgaon in their affidavit. It’s market value is not disclosed, but Sahara had paid Rs 1,436 crore to buy this land to be developed as commercial space and residential apartments, including group housing, branded villas, luxury apartments, club and hotels.

There is just no end to the Sahara family’s real estate assets spread all over the country. The family has a 33 percent stake in a Versova project spread over 106 acres of land of near Lokhandwala complex in Mumbai (bought for Rs 1,848 crore); a 40 percent stake in four city home projects in four cities/towns admeasuring 318 acres of land (market value is Rs 888 crore); a 50 percent stake in 15 city home projects in 15 cities/towns over 1,751 acres of land (market value of the Sahara’s stake is stated to be Rs 5,192 crore); a 30 percent stake in a 170-acre project in district Lucknow (the Saharas bought it for Rs 1,000 crore); a 100 percent stake by way of holding equity shares of 60 entities having parcels of lands admeasuring 515 acres at 16 locations at various cities/towns in India (the enterprise value of the Sahara shares is Rs 3,138 crore; and 100 percent stakes in two entities holding development rights over two plots of 196 acres and 56 acres at Vasai and Malegaon in Maharashtra (the pre-tax enterprise value is Rs 2,421 crore for the Saharas).

However, the key issue is how much of these real estate assets are owned by the group and how much by the two companies that have been asked to refund OFCD money investors.

The Sahara affidavit filed in the apex court points out details submitted to Sebi earlier on 14 September 2011. SIREC is said to have invested Rs 6,430 crore in real estate projects whose market value increased to astronomical heights - Rs 36,000 crore a near six-fold rise!

Details submitted before Sebi, however, do not show corresponding increases in the value of the Saharas’ cash flow and developmental activities. SIREC has listed current assets, cash and bank balances, development rights on land and projects, advances under joint ventures, etc., the book value of which was pegged at Rs 15,937 crore. The market value of current assets, including cash flow, is shown as Rs 20,297 crore.

The affidavit submitted before the Supreme Court says that SIREC had Rs 23 crore in mutual funds as on 30 November 2011, an investment of Rs 125 crore in partnership firms, and loans and advances (other than to Optionally Fully Convertible Debenture holders) of Rs 204 crore. And the cash and bank balances, including fixed deposits and other current receivables as on 30 November 2011, stood at Rs 1,655 crore.

The real issue, however, is how SIREC and SHIC will manage to mobilise Rs 27,000 crore (including 15 percent interest) within the three-month deadline against the notional and market values of properties described in its affidavit? The Supreme Court did not seem to be too impressed with the Saharas’ real estate prowess.

More important, the Sahara affidavits tend to fudge the separation between group assets and assets directly owned by SIREC and SHIC - which are the ones which have to refund Rs 27,000 crore.

Worse, the Saharas will first have to meet a shorter deadline, that is, of 10 days, for furnishing the details, with supporting documents, to establish how much they had refunded to persons who subscribed to the OFCDs of SIREC and SHIC dated 13 March 2008 and 16 October 2009.

Seven days are left now and the Saharas will have to furnish these details and documents on 11.77 lakh investors of SIREC. In their affidavit to the Securities Appellate Tribunal (SAT) dated 14 September 2011, the Saharas put it on record that “11,77,748 investors were duly repaid on account of redemptions from time to time as per the terms of OFCDs” as at the end of August 2011.

The balance of 2,21,07,271 (22.10 million) investors are to be repaid their dues on future dates of redemption an aggregate sum of Rs 17,657 crore by SIREC alone, according to the affidavit.

That’s one hell of a logistical exercise to be accomplished within three months.