Investors claim that investments made by ICICI Ventures in real estate projects caused huge losses, for which the investors are seeking damages
69 NRI investors, who had invested in ICICI Ventures' India Dynamic Fund III, have sued 'ICICI and associated companies' to the Mauritius Supreme Court. The suit is regarding losses suffered as a result of investments in real estate.
“A plaint with summons was lodged before the Supreme Court of Mauritius by a group of NRI and foreign investors against (DIF III), International Financial Services Ltd (IFS), ICICI Venture Funds Management Company Ltd (ICICI Venture), ICICI Bank and the Western India Trustee And Executor Co Ltd,” the legal firm handling the case, Banymandhup Boolell Chambers said.
These 69 investors are part of a larger group of 500 investors in the fund. The investors allege that the fund, promoted by ICICI Ventures and ICICI Bank, did not invest in world class projects as promised, but instead invested in projects that flopped miserably.
Calling the allegations baseless and pointing out that only 69 out of 500 investors are party to the suit, an ICICI spokesperson said, “It is common knowledge that globally PE as an asset class does not guarantee returns given the equity risks involved. Also, projects in real estate have a long gestation period and hence the returns accrue over a period of time.”
However, pointing to the fact that of the 13 projects invested in, 5 projects (2 in Mumbai and 3 in Hyderabad) took up 60% of the corpus, the investors said that this went against ICICI's original promise of diversifying the investments. The investors also alleged that as per the fund's March 2014 report, only one project in Pune had been exited, while the rest were in various stages of construction, with a Chennai project yet to begin.
The petitioners said that, “Thus, it is a classic case of total neglect of due diligence, research of suitability taking into account of exit term, outrageous underestimation of cost and completion, alleged negligence and overt manipulation of the finances for escalating costs and serious blunders in judgment of selection of projects.”
In its defence, ICICI through its spokesperson added, “ICICI Ventures has extended the fund’s life by three years to optimise the realizations from the portfolio. ICICI Ventures also simultaneously offered investors a cash exit option in line with global best practices.”
The investors are claiming a sum of USD 103,699,976, which is the capital investment made by the investors in DIF III and the moral damages.
Nifty is drifting sideways with low volumes
Yesterday we had mentioned that the benchmark may move sideways. Weak trading on the bourses up to around 1.40pm was followed by a surge which continued up to around 2.45 pm when the indices hit their intra-day high. After this the indices gave up some of the gains but closed near the intra-day highs.
Sensex opened at 26,789 while Nifty opened at 8,002. The indices hit a low at 26,764 and 7,995 and managed staying above yesterday’s low. Sensex hit a high at 26,907 and closed at 26,881 (up 128 points or 0.48%), while Nifty hit a high at 8,038 and closed at 8,028 (up 36 points or 0.45%). NSE recorded a volume of 65.20 crore shares. India VIX fell 1.42% to close at 13.3225.
Manappuram Finance (9.98%) was among the top three gainers in the A group. It hit its 52-week high today. PMC Fincorp (10.15%) was the top loser today, it gave up some gains today after hitting its 52-week high on Monday.
Sun Pharma (4.31%) was the top gainer in the Sensex 30 pack. Sun Pharma is in the process of acquiring Ranbaxy, it gained after Ranbaxy's consolidated numbers showed improved performance over the year ago period.
Today again Hindustan Unilever (0.83%) was at the losing end among the Sensex 30 stocks. Its board declared an interim dividend of Rs 6 per equity share of face value of Re 1 each for the FY14-15.
US indices closed flat on Monday. Yesterday's data indicated uneven economic growth in the US. Contracts to purchase previously owned homes rose less than forecast in September, showing housing will take time to gain momentum. Another release showed growth in services activity slowed this month, while the Dallas Fed's gauge of regional manufacturing fell.
Asian indices showed mixed performance. Shanghai Composite (2.07%) was the top gainer while Jakarta Composite (0.46%) was the top loser.
Data from China's statistics bureau showed profit as China's industrial companies grew 0.4% last month, compared with a 0.6% drop in August.
European indices were trading in the green. US Futures too were trading higher.
Will RBI insist on one credit report free annually?
Dr Kirit Somaiya, Member of Parliament (MP), who inaugurated Moneylife Foundation’s Credit Helpline, narrated the story of how former Union minister Suresh Prabhu found himself marked a defaulter for no fault of his. Apparently, a telephone company had failed to disconnect a mobile number and was piling on the minimum charges with interest that made him a ‘defaulter’.
This story is repeated all over the country with multiple variations; none of them has the same quick resolution that Mr Prabhu probably had. Some multinational banks have sold off their defaulter portfolios to recovery agencies without any attempt to clean them up. Consequently, thousands of people have been served legal notices with exaggerated demands. This is forcing victims to seek help from ‘debt doctors’ or ‘credit repair’ agencies who, along with credit recovery agencies, are indulging in extortion!
A third set of people are completely innocent victims of an identity mix-up within credit information companies (CICs) whose data algorithms match up multiple borrowings of people from different lenders to create a credit profile. Sometimes, this goes horribly wrong and people who have no borrowing or good credit record are shown as defaulters. Moneylife Foundation has helped resolve a couple of such cases.
The biggest issue, though, is the absence of information. The Credit Information Bureau of India Limited (CIBIL) is currently running an advertising campaign that grossly exaggerates the advantages of a high credit score. CIBIL enjoys the first-mover advantage and has become the generic name for credit scores. This also adds considerably to its bottom-line because it is allowed to charge for its credit reports and collects a hefty Rs450 to give you your credit score!
This historical and extortive practice needs to be changed. In the US, every person with a credit history is entitled to get one free credit report from every credit rating agency. Typically, an American will get an annual credit report from at least four credit bureaus operating there. The same big global names operate in India—TransUnion with CIBIL, Experian and Equifax (with CRISIL) and a fourth which is called Crif.
One of the first issues that Moneylife Foundation would like to take up with the Reserve Bank of India, and through Dr Kirit Somaiya’s promise of help, is that Indians too should get their credit report free every year at least by email (to keep costs low). This will ensure that a Suresh Prabhu is not shocked at finding himself a defaulter when his son is going abroad. And innocent victims of identity mix-ups will know of problems long before they apply for a loan.
But, as Dr Somaiya said, this is only the beginning. A lot more needs to be done, including on the issue of deliberate mis-selling of insurance and wealth management products by banks. But this will happen only when regulators are forced to have an open dialogue with financial consumers and are made accountable to people. Unfortunately, that is still a far cry.