Asahi Fibres: When corporate governance goes amiss

Asahi Fibres’ board seeks shareholders’ approval for corporate guarantee to its associate company for an amount 20 times its net worth, but a year late

Asahi Fibres Ltd, engaged in the manufacture of yarn and fabrics, got a fresh lease of life in 2008 when the Board for Industrial and Financial Reconstruction (BIFR) revoked its earlier recommendation, issued on 11 November 2002, to wind up the company.

BIFR held that Asahi’s current management had turned the company’s net worth positive as on 31 March 2007. Since then, the company’s management has flouted corporate governance rules. Asahi gave corporate guarantee in favour of two banks for loans taken by its associate company, Realtime Properties. It was approved by the Asahi Board in December 2008, without the approval from its shareholders.

What’s interesting is Asahi Fibres, with a net worth of Rs5.40 crore as on 31 March 2009, provided corporate guarantee of Rs190 crore, an amount almost 20 times higher than its net worth.

Realtime Properties is a unit of Jaybharat Textiles and Real Estate which held 48.5% stake in Asahi Fibres as on 31 March 2009. However, according to the Asahi auditor report, there are no companies under the same management within the meaning of Section 370 (1-B). The auditors, however, are silent on disclosure required under Section 372(B) of the Companies Act.

Surprisingly, Asahi Fibres’ corporate governance report for FY09-10 states that “none of the transactions with any of the related parties were in conflict with the interests of the company”.

The report also noted that the company has taken an unsecured loan of Rs117 crore during the financial year ended March 2009 primarily to fund addition to assets. However, there is no disclosure about the corporate bodies from whom Asahi took the loan.

Asahi Fibres has initiated the process of obtaining a special resolution through postal ballot to seek consent of the shareholders for extension of the corporate guarantee. The company, in its notice for postal ballot, has blamed “exceptional circumstances” for preventing the Board from obtaining prior approval from members in 2008. Asahi Fibres’ shares are suspended from trading on the Bombay Stock Exchange (BSE).

Moneylife sent an email to Asahi Fibres seeking a clarification on the “exceptional circumstances” that prevented it from following the due process of law and applicable mandatory disclosures. However, the email remains unanswered, till date. 

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    Pantaloon to invest Rs360 crore in retail space

    Pantaloon Retail is also looking to hive off its value retail chain, Big Bazaar, into a separate subsidiary which may float an IPO.

    Pantaloon Retail India Ltd (PRIL), the country's largest listed supermarket operator, plans to spend Rs360 crore in the remainder of this fiscal to add up to 2.4-million sq ft of retail space to existing operations, reports PTI.
    "We have a capacity expansion (capex) plan of Rs360 crore to add up 2.4 million sq ft of retail space...That is in the Pantaloon Retail balance-sheet and not the subsidiaries. That's the plan for the balance seven-eight months of this financial year," Pantaloon's managing director, Kishore Biyani, told reporters after the company's 22nd AGM.
    The company, a part of the diversified Future Group, begins its financial year in July. The Future Group operates 15 million sq ft of retail space across India, of which Pantaloon Retail, with its multiple lifestyle and value chains, operates around 13-million sq ft.
    Pantaloon Retail is also looking to hive off its value retail chain—Big Bazaa—into a separate subsidiary, which may eventually float an initial public offer (IPO).
    "We are looking at spinning off Big Bazaar into a separate company... If we need capital, probably we can raise it through a public issue," Mr Biyani said.
    He said the company will open 155 Big Bazaar stores by 2014, increasing its total network to 275 stores. PRIL also plans to deploy a part of the Rs500-crore it raised through a QIP issue last week for expansion and debt reduction.
    — Yogesh Sapkale

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    ABG reaps windfall gains as it offloads Great Offshore stake

    With its sudden exit from the race to acquire Great Offshore, ABG has made a profit of Rs46.80 crore on an investment of about Rs124 crore

    The race to acquire Great Offshore Ltd (GOL) has ended with the sudden exit of ABG Shipyard Ltd. With this development, Bharati Shipyard Ltd is all set to gain control over GOL.

    In a release to the Bombay Stock Exchange, ABG Shipyard, the country's largest shipbuilder, said the company, along with its unit Eleventh Land Developers Pvt Ltd, have sold their 8.27% stake (almost the entire stake barring some 571 shares) in GOL.

    This move from ABG caught everyone, including Bharati, sleeping as earlier on Wednesday, Bharati raised its open offer price to Rs590 per share from Rs560 per share to buy additional 20% stake in GOL. At present, Bharati through its units Dhanshree Properties Pvt Ltd (DPPL) and Natural Power Ventures Pvt Ltd holds 23.2% stake in GOL.

    Earlier in June 2007, GOL promoter Vijay Sheth pledged his entire 15.5% stake with IL&FS and Motilal Oswal, who started to seek margin money following a plunge in the value of shares pledged by Mr Sheth. He borrowed the money from Bharati, with whom GOL had placed orders for some vessels.

    However, in May 2009, Bharati acquired the pledged shares for Rs315 each, calling it a 'strategic investment'. Mr Sheth stepped down as vice-chairman and managing director of Great Offshore in June, clearing uncertainties about GOL's management control. As of end-September, the promoter and promoter group shareholding in GOL was nil.

    Initially, even Bharati was not interested in making an open offer for GOL, but after it bought the pledged shares, ABG started buying GOL shares from the open market.

    According to reports, there were some apprehensions among Bharati’s management that ABG may buy substantial shares from Mr Sheth's brothers or some institutional investors, which forced Bharati to go for an open offer. With no other option left, Bharati made an open offer to buy additional 20% stake in GOL at Rs344 per share in June 2009.

    In the same month, ABG also joined the race to acquire the oil equipment and services provider GOL for a price of Rs375 per share, following which Bharati through its unit DPPL raised its stake in GOL by buying additional 4.58% stake at Rs403 per share.

    Laadki Trading & Investment Ltd, Bharat Kanaiyalal Sheth, Ravi Kanaiyalal Sheth, Jyoti B Sheth and Amita Ravi Sheth sold these shares, Bharti had said in a release. It also revised its open offer price to Rs405 per share.

    Following today's developments, shares of both Bharati and ABG were trading higher than yesterday's closing prices, while GOL’s scrip was down.

    However, the question lingering among investors is, if ABG was not serious about its offer to GOL, then why did it make a counter offer in the first place? The reason is quite obvious. ABG bought shares in GOL for an average price of Rs406. The average selling price of GOL at 14.33hrs IST on the BSE was Rs558. Considering the fact that ABG sold 30.78 lakh shares at a minimum Rs558 per share, it thus made a cool profit of Rs152 per share or Rs46.80 crore, within a span of six months. That is a huge profit on the total investment of just Rs125 crore. Whether this move stems from the business acumen of ABG or Bharati’s sheer bad luck (it has to go on increasing its offer price unnecessarily), you can be the judge.
    -Yogesh Sapkale

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