CG Power shares slump 20% amid reports of financial irregularities in company; all you need to know

Shares of CG Power and Industrial Solutions on Wednesday slumped 20 percent to touch their lowest trading permissible limit for the second consecutive day amid alleged financial irregularities in the company.

On the BSE, the scrip tumbled 20 percent to touch its 52-week low of Rs 11.80. On the NSE, the shares plunged 19.93 percent to reach their lower price brand at Rs 11.85.

Meanwhile, shares of Yes Bank, which has 12.79 percent stake in CG Power as on 30 June, 2019, also fell over 4 percent to Rs 68.10 apiece on the BSE. According to The Economic Times, some of India’s biggest mutual funds also hold substantial stakes in Gautam Thapar’s CG Power. HDFC Asset Management Company holds 9.18 percent, Aditya Birla SunLife AMC 8.94 percent, Franklin Templeton AMC 3.19 percent, said the report.

Here is all you need to know about the fraud at CG Power and Industrial Solutions: 

Representational image. Reuters.

Gautam Thapar-promoted CG Power and Industrial Solutions on Tuesday said an investigation by its board found major governance and financial lapses, including advances to related and unrelated parties as well as liabilities of the company and the group potentially being understated by hundreds of crores of rupees.

After 13 hours of discussions concluding at 4 am, the board came to the conclusion that there were some unauthorised transactions carried out by 'certain employees', which led to a potential understatement of not only the company's liabilities but also advances to related and unrelated parties of the company and the group.

Advances to related and unrelated parties of the company and the group may have been potentially understated by Rs 1,990.36 crore and Rs 2,806.63 crore, respectively, as on 31 March, 2018, and by Rs 1,479.34 crore and Rs 1,331.47 crore, respectively, as on 1 April, 2017, the company said in the regulatory filing to exchanges.

What is the issue?

The company's current and past employees, including unnamed non-executive directors and certain Key Managerial Personnel (KMP) provided certain assets of the company as collateral and made the firm a co-borrower or guarantor to obtain loans without due authorisation. The funds so raised were routed out of the company.

The company has said that recovery of these amounts together with interest will be evaluated with appropriate legal inputs.

The net worth of the company was potentially understated due to unauthorised and inappropriate write-offs and charges debited to the Profit & Loss statement of the last two financial years, said the company.

The company had appointed an independent law firm to investigate certain transactions after it could not trace transactions when a finance firm raised the issue of interest payment failure and a bank sought replacement of cheque validity that was about to expire.

One of CG Power’s joint auditors, SRBC & Co LLP (an audit arm of EY), has sought information and explanations from the company regarding certain transactions as part of the notice issued to the company under Section 143(12) of the Companies Act, 2013.

--With PTI inputs