To return OFCD money, Sahara will have to sell properties

The Sahara Group, in an affidavit filed with the court on 4 January, has disclosed a complex web of over 200 companies, in some of which the group invested public money raised through OFCDs.

Raman Kirpal January 25, 2012 12:36:34 IST
To return OFCD money, Sahara will have to sell properties

If Subrata Roy's Sahara Group is forced to return the investments made by the public in optionally fully convertible debentures (OFCDs) by two group companies - Sahara Commodity Services Corporation (SCSC) and Sahara Housing Investment Corporation (SHIC) - it will have to liquidate a lot of its real estate properties in the current weak market.

In October 2011, the Securities Appellate Tribunal (SAT), the body that hears appeals against Sebi orders, ordered these two companies to return over Rs 19,000 crore (the exact amount could be higher) that they had collected through OFCDs from the public while claiming that these were private placements. The Supreme Court has temporarily stayed the SAT order, but has asked Sahara to show that it has the requisite money and "unencumbered assets" or bank guarantees to pay back investors.

The Sahara Group, in an affidavit filed with the court on 4 January, has disclosed a complex web of over 200 companies, in some of which the group invested public money raised through OFCDs.

What the affidavit shows is that the group had only Rs 1,655 crore in cash and bank balances and fixed deposits as on 30 November 2011. In addition, it had Rs 23 crore in mutual fund units. The rest of the money is invested in real estate projects, where exits may take time.

To return OFCD money Sahara will have to sell properties

If Sahara is forced to return the investments made by the public in optionally fully convertible debentures, itwill have to liquidate a lot of its real estate properties in the current weak market.

Among the projects in which the group has sunk money is the controversial Aamby Valley project between Mumbai and Pune. The group's disclosure in the affidavit indicates that Rs 14,829 crore was invested in various real estate projects through cheque payments. The group, however, pegs its total investment at Rs 22,367 crore and claims that the market value of these investments is over Rs 56,000 crore.

The group had raised Rs 19,400 crore through OFCDs issued by SCSC (formerly Sahara India Real Estate Corporation) and the Sahara Housing Investment Corporation. It retained Rs 17,490 crore after accounting for some premature redemptions, it was reported recently.

Sahara has been fighting a long battle to delay repayments since 23 June, when Sebi first directed it to return the money to crores of investors. It appealed to SAT, lost the appeal, and has now moved the Supreme Court. Both Sebi and SAT castigated Sahara for suppressing material information on its OFCDs to escape regulatory scrutiny.

At the Supreme Court, Sebi has been alleging that Sahara group transactions were "nebulous", and there was some manipulation of figures. According to a report in Business Standard, the Sebi counsel told the court that "it was difficult to monitor the operations of the group" as it only had development rights in some projects and, at any time, "a company could go into liquidation".

This prompted Chief Justice SH Kapadia to ask Sahara to "give us clear, unencumbered property."

The Sahara Group has listed the following properties as "unencumbered" and which were wholly or partly held by the group through joint ventures.

• Development rights in land owned by Aamby Valley Ltd measuring 707 acres near Pune. Sahara had paid Rs 3,459 crore to have development rights in this project.

• Aamby Valley City, which is developing a private hill station near Mumbai. The city is being developed over 10,000 acres of land. It has had a controversial origin and is under investigation by the Enforcement Directorate. Sahara and its 11 subsidiaries had invested Rs 5,207 crore. The claimed market value of Sahara Aamby Valley is Rs 40,461 crore.

• Development rights in land measuring 186 acres in Delhi NCR through various Sahara group entities. Sahara invested Rs 1,436 crore in this project.

• 33 percent stake in Versova project (near Lokhandwala Complex in Mumbai's western suburbs), comprising 106 acres of land. Sahara's investment is Rs 1,848 crore.

• 90 to 95 percent stake in 64 special purpose vehicles (partnership firms) of the Sahara Group having 64 real estate projects in 64 cities. Sahara invested Rs 1,105 crore.

• 40 percent stake in four city home projects measuring 318 acres of land in four cities.

• 50 percent stake in 15 city home projects in 15 cities measuring 1,751 acres of land. Total Investment: Rs 180 crore. As on today, Sahara claims that the valuation of its shares in four city home projects is about Rs 888 crore (before tax). And the value of 15 city homes project is Rs 5,192 crore.

• 30 percent stake in land in Lucknow district measuring 40 acres. Total investment: Rs 1,000 crore

• 100 percent stake by way of holding equity shares in 60 entities with 515 acres of land at 16 locations. Total investment: Rs 532 crore, while the current value is pegged at Rs 3,138 crore.

• 100 percent development rights held by two entities in land measuring 196 acres at Vasai and Malegaon in Maharashtra. Total investment: Rs 62 crore. The current value is estimated at Rs 2,421 crore.

In addition, the Sahara Group says it will produce the requisite financial statements consisting of balance-sheet and profit and loss account till 30 November 2011.

Sahara has listed countless number of subsidiary companies, which, it claims are partly or wholly owned by the group - Shirish Development and Investment Pvt Ltd, Shishira Realty and Development Pvt Ltd, Sharone Development and Leasing Pvt Ltd, Sarah Realty and Finance Pvt Ltd, Reginald Leasing and Development Pvt Ltd, Richard Finance and Development Pvt Ltd, Benedict Estate and Reality Pvt Ltd, Alcina Estate and Development Pvt Ltd. The list just goes on.

As reported by Firstpost earlier, SAT, in its 18 October order, had said that the two Sahara companies pretended to be making a private placement of OFCDs when the intention all along was to place it with the public. The Companies Act clearly specifies that if any issue exceeds 50 investors, it will be deemed a public issue and hence Sebi's jurisdiction applies. But Sahara's information memorandum and Red Herring Prospectus (RHP) hid this fact.

Said the SAT order: "What it (the RHP) did not disclose was the fact that the information memorandum was being issued to more than 30 million persons inviting them to subscribe to the OFCDs and there lies the catch....This concealment is, indeed, very significant and goes to the root of the controversy."

"It is, therefore, evident that the intention of the company and its promoters from the very beginning was not bonafide. In this view of the matter, we cannot but hold that the appellants concealed some very vital facts from the Registrar of Companies and from its shareholders and also from the investors and we are satisfied that the disclosures made in the RHP were not true and fair."

SAT ordered Sahara to return the money in six weeks, but the Supreme Court has stayed this order pending a final decision.

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