The global monetary easing has created a strong uptrend. However, if the Nifty closes below 5,410, the uptrend will be in doubt
Sahara India Real Estate, one of the two Sahara companies ordered by the SC to return investor's money, used a 'death risk cover' as a smart lure. We discover that this is another dodgy area with absolutely no information available about the insurer, the legitimacy of the death risk cover and the amount of premium paid by Sahara
Sahara India Real Estate Corporation (SIREC) has been selling Optionally Fully Convertible Debentures (OFCD) under catchy names like Nirman Bonds, Real Esate Bonds and Abode Bonds to raise tens of thousand crore rupees without bothering with proper regulatory clearance. An added attraction in selling the bonds was the “death risk cover” for all the first two—Nirman and Real Estate bonds.
But as Moneylife has always pointed out, an insurance cover is good only if you can make a successful claim and that will happen when the insurer is legitimate and has all the regulatory clearances.
Documents available with Moneylife show that the death risk cover is probably another dodgy chapter in Sahara’s operations with very little information available or revealed. Documents submitted by the company in the course of its long legal battle include sworn affidavits which say that the entity collected Rs17,600 plus crores after over 11.77 lakh investors had made premature redemptions. Investors had to make a minimum investment of Rs12,000 for two Real Estate Bonds, which could be done in installments of Rs200 each. The Nirman Bonds had no facility to pay in installments. The company claimed 1.36 crore persons had invested in the Real Estate Bonds after eliminating premature redemptions and 14.11 lakh persons had invested in Nirman Bonds. So much was the insurance cover on these bonds? What was the premium collected? There is surprisingly no information. In one affidavit, Sahara says that the number of persons who claimed would be provided if the appellate tribunal required this information.
The bigger question is, who got this seemingly lucrative insurance business? It is another mystery. For starters the two Saharas (as the Supreme Court referred to them) had no infrastructure of their own. They had a “written arrangement with M/s Sahara India—a registered partnership firm of the promoters” for “taking the premises and utilising other related infrastucture and facilities including manpower, bank accounts maintained at each of the branches owned by the said firm throughout the country for a composite rent consideration agreed to between the company and the said firm”.
Translated into simple English, it means that not only was an astonishing Rs17,600 crore collected from crores of persons, but a partnership firm of the promoters was banking all the money and providing the manpower. The persons who canvassed the loans—apparently 10 lakh of them—were called “freelance workers”, which means they would have zero accountability to the Sahara group or to the investors. Sahara India of course claims that it has a list of these freelance workers and they are associated with its other group businesses. At the same time, it also says that these ‘introducers’ were “not on pay-roll but remunerated”. They entered the collections in “Day Books” like it was small piggy-bank change and deposited it in Sahara India accounts.
At a time when the capital market regulator and insurance regulator are working at new ways to make distributors and agents accountable, it is astonishing that a company collected such vast sums of money without bothering with any regulation and the topmost lawyers in India fought hard to establish the legitimacy of its actions.
Now let us look at the so-called insurance. An affidavit by the company says, “Each investor in Nirman Bonds and Real Estate Bonds were provided “death-risk cover”. Up to February 2010, the cover was provided through a group insurance policy taken out by Sahara India Life Insurance Corp at the instance and cost of the Appellant No. 1 (Sahara India Real Estate Corporation Limited & Ors) company. We wrote to Sahara India as well as the Insurance Regulatory Development Authority (IRDA) to ask about the size and structure of this group cover and the amount collected, but we have received no reply. In fact, the insurance regulator probably does not even know about the cover and it is unclear if Sahara India Life Insurance obtained permission to offer it. This scheme too seems to have come to an end at the end of February 2010. Was it because it was not legitimate? We don’t know.
The affidavit says, “From 1 March 2010 “death risk cover” for each investor was, however, undertaken directly by the Appellant No. 1 (Sahara India Real Estate Corporation Limited & others) . On the basis payments have been made to nominees of the deceased investors, whose names and details can be provided, if required, by this Hon’ble Tribunal.”What exactly does this mean? SIREC is not an insurance company, so how can it offer this risk cover? How much of money was raised under the Nirman and Real Estate Bonds after 1 March 2010?
The death risk cover ostensibly provided on the Nirman and Real Estate Bonds obviously raise plenty of questions, but now that the Supreme Court has ordered redemption within three months, it remains to be seen if the insurance regulator follows this up. After all, Sahara India Life Insurance is a regulated entity, which used to captivate people with its catchy advertisements. Also, the regulator needs to investigate, if only as a detterant to many other companies that have been fabricating shady bonds and trying to follow in Sahara’s footsteps.
Anil Ambani group company Reliance MediaWorks continues to bleed. Now, its partner, Digital Domain, has filed for bankruptcy and Reliance MediaWorks may have an exposure of about Rs150 crore to this US-based visual effects company. Reliance MediaWorks’ shareholders continue to pay for the misplaced adventurism of the company
Shares of Reliance MediaWorks (RMW), the Anil Dhirubhai Ambani (ADA) group company, fell by over 7% in the morning trade on Wednesday following reports that its US-based partner Digital Domain Media Group Inc has filed a voluntary bankruptcy petition.
According to media reports, financially struggling Digital Domain, owner of one of the entertainment industry's leading visual effects companies, has said that it filed a Chapter 11 petition with the US Bankruptcy Court in Delaware as part of an effort to “ensure the long-term future of its core business” and trigger a “sale of assets”.
Last year, the ADA group company partnered with Digital Domain, founded in 1993 by ‘Titanic’ and ‘Avatar’ director James Cameron and others to open studios in London and Mumbai and offer various post-production services. According to reports, RMW may have exposure to the tune of Rs150 crore in Digital Domain.
While Digital Domain has been incurring steep losses in recent years, it was same story at RMW as well. RMW is planning to sell off its Big Cinemas franchise to its arch rival Inox Leisure in order to pare down its massive debt. According to those close to the deal, Anil Ambani expects to get around Rs150 crore from the deal while Inox is willing to pay less Rs100 crore.
After fighting bitterly for Fame India, both RMW and Inox ended up with 22.38% and 73.14% stake, respectively in the film exhibitor, which owns 95 screens across 12 cities in India. The ADA group tried very hard to take control of Fame India, but failed to do so. However this setback made Anil Ambani go in for Hollywood and Bollywood and a whole lot of other expansion and thus incurring losses.
For the 12 months ended 31 March 2012, RMW’s net losses swelled to Rs572.16 crore and its net worth stood at a negative Rs239.58 crore. What is pertinent is that the ADA group company’s auditors have questioned whether RMW would ever able to continue as a going concern basis. In a review released in February, it said that the erosion of net worth casts a doubt about the company’s ability to continue as a going concern.
Share price movement of RMW
The company had taken massive amounts of debt to ward away competition, especially from Inox, and acquire various properties, including splurging on the landmark joint venture with Steven Spielberg’s DreamWorks. Such ambitious plans saw the company’s current liabilities swell up to Rs2,317.31 crore as of 31 March 2012 as against its capital of Rs23.06 crore.
Earlier in July, the ADA group company claimed to have found a private equity (PE) fund that was interested on buying ‘minority’ stake in RMW's film and media services division for Rs605 crore. And this was not the first time the limping entertainment business of the ADA group has claimed to have got large investment from foreign funds.
Four years ago, billionaire investor George Soros was supposed to invest $100 million for buying a 3% stake in Reliance Entertainment. Both parties signed a term sheet in March 2008. However, the deal was stuck later over valuation of the company and other issues.
The ADA group in general has been strapped for cash because many of its businesses have been doing badly—as is reflected in stock prices which have hit multi-year lows.
Coming back to Digital Domain, the bankruptcy filing has come a week after it defaulted on a $35 million loan to a group of investors led by New York-based Tenor Capital Management Co. Last week, it also decided to close down its animation studio in Port St Lucie and lay off about 320 employees.
Digital Domain has also reached a deal to sell its Venice-based unit Digital Domain Productions Inc, to private investment firm Searchlight Capital Partners for $15 million, subject to approval from the bankruptcy court.
As of 30th June, Digital Domain Media Group said it had assets of $205 million and liabilities of $214 million. Digital Domain has created effects for more than 90 movies, including ‘Titanic’, ‘Tron: Legacy’, ‘Pirates of the Caribbean: At World's End’, and ‘Transformers’.
At 1.09pm, RMW was trading 4% down at Rs63.4 on the BSE, while the benchmark Sensex was marginally up at 17,905.