Manoj Tirodkar of GTL admits that his group needs de-leveraging, but shouldn’t regulators investigate the true extent of its borrowing and pledge of shares?
Manoj Tirodkar of the Global Group of companies is no stranger to controversy. In an interview to Business Standard recently, Tirodkar said that he had survived a "tsunami and is still recovering from it". Well, when it comes to Tirodkar, his investors and lenders probably have to learn to survive many tsunamis.
Tirodkar was once a close buddy of scamster Ketan Parekh and his flagship company—then called Global Tele-Systems—which was part of the 10 key stocks that were relentlessly ramped up by Ketan Parekh. In the aftermath of Ketan Parekh's financial collapse and the Joint Parliamentary Committee (JPC) investigation, the shares fell to a fraction of their pumped-up high.
Tirodkar then left India for a while and seems to have used the time well to come out nearly unscathed.
However, the steep drop of over Rs4,400 crore in the market-cap of his two companies—GTL Ltd and GTL Infrastructure on 20th June—has jolted investors as well as lenders into taking stock of his self-confessed need to 'de-leverage' his balance sheet by infusing more equity into his companies.
GTL has announced the appointment of SBI Capital Markets (SBI Caps) to assess its financials and suggest appropriate steps to protect lenders' interest. We at Moneylife think that the regulators—both the Reserve Bank of India (RBI) and SEBI (the Securities and Exchange Board of India) ought to be investigating GTL rather than its own financial intermediary.
SEBI needs to unravel and make public the mystery of the seven companies who dumped GTL stock on a single day. These seven—Green Ridge Properties, Cosmo Advisory Services, Reckon Trading, Aerolite Advisory Services, Cross Link Trading, Plasma Advisory Services and Savyasachin Estates—accounted for roughly 40% of shares delivered on that Monday, when its stock price dropped dramatically. So far, GTL has offered no convincing explanation and has denied that these are financiers getting rid of pledged shares.
From 16th June to the end of today's trading session, GTL is down by 76% to Rs97.20 and GTL Infrastructure by 51% to Rs15.85 on the BSE (Bombay Stock Exchange).
Meanwhile, the RBI ought to look into the borrowings by the entire group. Remember, Global Tele, along with Himachal Futuristic and the Zee Group, had colluded with Ketan Parekh to bring about the demise of Global Trust Bank in 2000.
Which are the banks that have been lending to the Global Group entities to the extent that it is over-leveraged again? Have they followed prudent lending norms? And what are the repayments due in the coming months?
According to bankers, GTL has been borrowing through all its entities—listed and unlisted—from Indian banks. While the listed entities are tracked by investors and analysts, very little is known about the loans to unlisted companies, which are also substantial.
For instance, it is reliably learnt that Corporation Bank had disbursed Rs170 crore to GTL as of January 2011. It has also sanctioned another Rs500 crore to Chennai Network Infrastructure Ltd, of which Rs300 crore has been disbursed. GTL Infrastructure amalgamated with Chennai Network to form a Special Purpose Vehicle (SPV) to acquire Aircel's tower assets.
Global Holding Corporation (GHC) has other subsidiaries such as Global Rural Netco Ltd and Global Projects and Aviation Pvt Ltd (GPAL), which have borrowed Rs102 crore and Rs150crore, respectively, from Corporation Bank alone. This is the borrowing from one bank alone—only the RBI has the power to seek and collate how much the Indian banking system has lent to Mr Tirodkar in his second innings of high-speed growth.
Interestingly, in November 2009, Forbes magazine listed Manoj Tirodkar at the 84th rank in its list of richest Indians. His net-worth was estimated at $570 million. Less than a year later, in September 2010, CNBC-TV18 had reported that "Rs 800 crore of alleged bogus billing has been detected by the I-T sleuths" along with Rs8 crore of cash in raids on GTL group entities. It also claimed "several priceless paintings by Pablo Picasso, Salvador Dali and Rabindranath Tagore have also been found by I-T officials at residential premises and godowns" which were being valued by the tax authorities. Nothing further has been heard on that front.
Financial planner Dilip Samant underlined the importance of savings and talked about investment options and how to pick the right ones, at a Moneylife Foundation workshop
"It's not how much you earn that is important, but what matters is how much you save and for how long," Dilip Samant, Mumbai-based columnist and financial planner with Golden Investments, said today.
"You spend around 200-250 hours a month to earn money, but your spending continues for more than 720 hours every month," he said. Therefore, "saving is important, to strike a balance."
Mr Samant was addressing the first seminar conducted in Marathi by Moneylife Foundation on financial literacy. To underline the importance of saving, he described the case of Chandulal Shah, founder of Mumbai's Ranjeet Studio, who despite being rich and a millionaire at one time, ended up on road side mainly because of a careless attitude with regard to his earnings and practically zero savings.
He elaborated on the basics of understanding the financial circle, from bank accounts and transactions, various types of insurance, loans, to savings and investments, emphasising a right and timely approach and the need for due diligence before buying financial products.
He also described various investment options like fixed deposits, mutual funds, equities, gold and silver, as well as real estate, as the way to provide for future needs.
Mr Samant explained the documentation required to open a bank account, the types of bank accounts, advantages and disadvantages, interest rates, income-tax rules, penalties and the security of funds with banks. He also talked about credit and debit cards and cautioned people to be careful with the ATM PINs.
He discussed various investment platforms such as banks, cooperative societies and even bhishi (chit fund schemes).
Mr Samant also dwelt on home loans and education loans, and how to go about getting the loan from a bank. He assessed and explained the pros and cons of investment in real estate, and elaborated on investing in a new house, newly built property and housing under construction. "Always carefully assess the monthly EMI and read the loan document in detail," Mr Samant advised the participants.
On insurance, he explained the different types of policies-life, education and health insurance-and how to select the right policy. "The attitude of insurance as an investment is a wrong approach. One should have a policy just to take care of future uncertainties," he said.
Mr Samant said it was very important to know when, where and how to invest and he gave an in-depth presentation with examples ranging from fixed deposits to gold and the risks and advantages associated with these. "Make your money work for you. Just keeping money is not an option; but investing it rightly is the wise thing to do," he said.
Focusing on the returns on investment, he compared various options in the context of the impact of inflation. "Historically, the returns on fixed deposits are negative due to inflation. The real interest on fixed deposits erodes due to the price rise factor," Mr Samant said. He supported his argument with detailed figures of investment and returns over various time periods.
He examined multiple options like jewellery, gold exchange-traded funds, gold savings funds and e-gold/silver. He also discussed equities, mutual funds and systematic investment plans, again with examples that made it easier to understand.
One of the participants raised the issue about multi-level marketing schemes that promised double returns and gave such returns initially. Responding to the participant's question about how investors could guard against being lured by such investment proposals, Mr Samant said, "Any scheme promising such huge returns and not under the scanner of any regulator such as the Reserve Bank of India and the Securities and Exchange Board of India, should be avoided."
On the issue of MLMs, Yogesh Sapkale, deputy editor of Moneylife magazine, also warned against investing in these schemes. "Savings bank deposits give about 4% interest, fixed deposits close to 9% and Employees Provident Fund about 10%. So anything that promises returns more than 10% and seeks to get a large number of people to invest, should be strictly avoided," Mr Sapkale said. He mentioned that the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, was helpful in dealing with such schemes.
Nifty to move between 5,500 and 5,700
Optimism associated with the Greek government securing a crucial vote of confidence for its austerity plan, a necessity to secure a fresh bailout, led the global and Indian markets higher during the week. The domestic market gained 3% this week, making the second weekly gain in succession. However, overall in the April-June quarter the market lost 3%.
Gains in the oil & gas sector, after the government hiked retail fuel prices on 24th June, led to a positive close on Monday. Riding on positive sentiment, the market added modest gains on Tuesday. The positive developments in Greece led the market higher for the next two days.
The market settled lower on Friday, led mainly by huge losses in Reliance Industries. The Sensex closed the week up 522 points at 18,763 and the Nifty settled 156 points higher at 5627. The Nifty is likely to move sideways in a range of 5,500 and 5,700.
BSE Fast Moving Consumer Goods and BSE Realty (up 4% each) were the top sectoral gainers, while BSE Oil & Gas was flat. There were no losers in the sectoral space.
Hindalco Industries (up 8%), Sterlite Industries, State Bank of India (up 6% each) BHEL and HDFC (up 5% each) were the major gainers on the Sensex. On the flip side, Bharti Airtel (down 2%) and Reliance Industries (down 1%) were the main losers this week.
For the period between 1 April 2011 and 30 June 2011, Hindustan Unilever (up 20%) and Hero Honda (up 18%) were the best performers, whereas Reliance Infrastructure (down 22%) and DLF (down 21%) were the biggest losers.
Food inflation fell to a one-and-a-half month low of 7.78% for the week ended 18th June, with vegetables, pulses and potatoes cheaper. In the previous week, food inflation as measured by the Wholesale Price Index stood at 9.13%. In the comparable period last year it was over 20%.
The latest numbers on price rise of food items are the lowest since the week ended 7th May, when inflation was at 7.47%.
On the other hand, the HSBC Purchasing Managers' Index (PMI)-a headline index to measure the overall health of the manufacturing sector-posted 55.3 in June, down from 57.5 in May, and the slowest since September 2010.
June data showed a substantial rise in input costs for Indian manufacturers, driven by higher prices for raw materials. Output prices also increased at an above average rate, but the latest increase was the weakest in seven months as pricing power was restricted by strong competition for new business.
On the corporate front, the government has given its approval to Cairn Energy to sell a stake in its Indian unit to Vedanta Resources, subject to new riders. The Cabinet Committee on Economic Affairs headed by prime minister Manmohan Singh approved the sale with the preconditions that Cairn, or its successor, has to treat royalty payments on the Rajasthan oilfields as recoverable from oil sales.
Also, Cairn India will have to withdraw arbitration proceedings it has initiated disputing its liability to pay Rs2,500 per tonne oil cess on its 70% share in the fields.
On Friday, UK-based Vodafone agreed to pay over $400 million more to its Indian partner Essar for buying its 33% stake in the joint venture Vodafone-Essar. With this, Essar closed the deal to sell its stake at $5.46 billion, as against $5 billion decided earlier.
Essar held a 22% stake in the joint venture through its Mauritian arm and the remaining 11% through an Indian subsidiary.
On the global front, the Greek government won a vote of confidence in parliament with more than half the 300 MPs backing the socialist government of prime minister George Papandreou. The result clears the way for a new financial bailout for the debt-ridden European nation.
China's official purchasing managers' index (PMI) fell to 50.9 in June, down 1.1 point from 52 in May. The continuing drop in PMI implies that China's economic growth will continue to slow down on the back of the rate-tightening initiatives by the government.