Fraud in Ricoh. What was the role of exchanges, SEBI and rating agencies?
Imaging solutions and IT services company, Ricoh India's case is identical to the Satyam fraud as its revenues, receivables and inventories appear to be padded up, alleges Anil Singhvi, chairman of Ican Investment Advisors in a television interview. Despite several discrepancies in following regulatory practices, none of the exchanges, market regulator or even credit ratings agencies have shown interest in the affairs of Ricoh India. The company, a unit of Japanese Ricoh, not only failed to file its September quarter results for several months, but also changed its auditors several times.
Speaking with CNBC-TV18, Singhvi said, "There are only one or two points which one has to just look at it. The total borrowing two years back in March 2014 was Rs367 crore which went up Rs716 crore last year, that is March 2015. And now, it is Rs1,300 crore. `A company which does not incur a single rupee as a Capex, the loans going up from Rs300 crore to Rs1,300 crore. In addition, the parent has provided Rs500-Rs600 crore. They have given Rs200 crore of non-convertible debentures (NCD) and Rs270 crore of commercial papers (CP). I have yet to come across many companies in India where parent and particular in multinational company (MNC) will be giving a CP of Rs270 crore for a profit making company."
Bengaluru-based InGovern Research Services that provides proxy-voting advisory has also raised concerns on the operations of Ricoh India, in which auditors have pointed our several financial inconsistencies. Seeking appointment of government nominated directors on the board of Ricoh India, the proxy advisory firm, put the onus on market regulator Securities and Exchange Board of India (SEBI) to intervene in the matter as a pro-active regulator, says a news report.
Last week, after several months delay, Ricoh India filed is results for the September 2015 quarter. The company has reported a loss of Rs147 crore for the second quarter of FY2016 even as its total revenues jumped to Rs661.6 crore from Rs374 crore, same period last year.
In a regulatory filing on 18 February 2016, the company said that it is about to finalise its accounts and will file it in a short time. Further, the reason for the delay in filing was cited as the change in statutory auditors last year, which led to the new auditors taking longer than usual to furnish the signed reports to the Audit Committee. The company’s Board meetings have also been repeatedly postponed from 5th November to 10th November, and later to 14th November 2015.
According to report from LiveMint, PricewaterhouseCoopers (PwC) through Amarchand Mangaldas & Co conducted a forensic audit of Ricoh India. On 10 July 2015, the Company’s Board appointed BSR & Co as its new statutory auditors for five years in place of retiring auditors Sahni Natarajan and Bahl. Ricoh India’s regulatory filing on 7 December 2015 says that the company has considered and taken note of the recommendations of its statutory auditors. However, there is no mention of key recommendations from the statutory auditors.
In April 2016, Ricoh India had informed the exchanges that an independent agency has been appointed to assist the Audit Committee to better understand certain areas where the auditors had emphasized further review. This agency was conducting a review, which will be completed soon. It comprises of an independent law firm and accountants. Interestingly, some members of the top management including the CEO and CFO, have been asked to be on leave during the said review process. These include, Manoj Kumar, Managing Director and Chief Executive Officer, Arvind Singhal, Chief Financial Officer and Anil Saini, Senior Vice President and Chief Operating Officer of Ricoh India.
Earlier, the company had sent a communication to the exchanges on 18 February 2015 stating that 'The Company has not yet received the signed limited review report from the auditors and the audit committee would take up again the matter with the Statutory Auditors to submit their limited review report on an immediate basis.' Further, the filing stated, 'In order to assist the audit committee, the audit committee has sought the opinion of an Independent Agency in this regard.'
“Most importantly, the entire replacement of auditors raises a lot of doubt. They also could not figure out. It was not clear whether the parent company knew about the issue. If they knew it, they should have immediately informed the stock exchanges,” the report from LiveMint says quoting Shriram Subramanian, managing director of InGovern.
"Class action suit should be taken. At the end of the day, they (the government) did it in the Satyam case. Government-appointed directors should be there on the board. Not one director but all the directors,” he told the newspaper.
Ricoh India also filed a police complaint saying it has detected massive financial irregularities and fraud in the company after a forensic investigation revealed wrongdoing.
While the company was struggling with its audit reports, ratings agencies were too not concerned. In January, India Ratings and Research Pvt Ltd (Ind-Ra) upgraded Ricoh India’s Rs200 crore long-term non-convertible debenture (NCD) to Ind-AA from Ind-A. The ratings agency, a unit of Fitch, also upgraded long-term issuer rating of the company to Ind-AA from Ind-A, with a stable outlook.
According worried investors, Ricoh India first needs to fix its governance issues. What is more shocking in this case is silence from the exchanges and regulators. Despite all the incidents taking place in Ricoh India, there is no record of the stock exchanges having posed any questions to the company.
Ricoh India closed Monday 5% down at Rs269 on the BSE, while the 30-share benchmark ended the day marginally down at 25,230.